Unlocking the Secrets to Financially Stable Beauty Businesses

Sit down and see what's going on with the Queen of Salons. Hair, beauty, and more successful tips for business owners. All on Build Your Salon. Hello, hello, hello, my salon friend. How on earth are you? Phil Jackson here, your Queen of Salons, coming in your ears once more. Today we're talking all about the money, honey, and you have to wish me luck because this is the first podcast episode that I'm recording, decaffeinated, caught sight of myself bending over, and so we're on a juice fast for five days. My goodness, I'm so hungry I could take a chunk out of this table. And yes, so I'm recording for the first time without the help of caffeine at all. Literally just juices and water for me for five whole days. And gosh, I'm miserable. Anyway, let's talk about a happier subject, shall we? Well, happier for some, let's face it. We're going to talk about the money today. And this is always a topic that I get lots of feedback on, always a topic I get lots of questions on. In fact, perhaps I could turn this into a financial podcast for salons. As always, darlings, if there's a topic you want me to cover in more depth, please reach out, phil at buildyoursalon.com. You know I love hearing from you anyway. So we're talking all about the money. And before we do, of course, I have to give a little disclaimer that this can't be construed as solid financial advice for your business. You should be paying for that from a qualified, indemnified person. And that's kind of my first point, really, is you shouldn't be managing the money in your business on your own. We're very good at building teams around our business, either inside or outside the business. So we build teams inside of beauty therapists or estheticians or stylists. And then outside, we have this slightly looser team of people where we might have somebody that we go to for legal advice. We might have somebody that we go to when we need HR advice. We might have someone we go to for coaching support and mentoring. And you've got to have somebody in place that can give you decent financial advice, too. And I think people cut back too much on the wrong things sometimes. And I think this is a cost that people cut away. And I think it's a mistake. I think you could really use a financial advisor or an accountant on top of a day-to-day bookkeeper or some kind of accounting professional to help you manage those daily transactions.

So you need someone who's going to steer you financially and someone who you can use as a sounding board for your financial plans. And that's usually in the form of an accountant. So if your accountant is purely filing your returns once a year, we've got to look at that relationship. You've got to be getting that into a conversational relationship where they're actually helping and nurturing and helping you steer the business. And then on top of that, I think there are so many salon owners. Gosh, it's going rather well for no caffeine, isn't it? I think there's a whole slew of salon owners who are doing their own bookkeeping. So they're worrying about every receipt that goes through the till every single day. And I think that is a mistake as well. Well, I think we should be hiring somebody who can put those financial transactions into some kind of order that your accountant then understands very readily. Because first of all, that tends to keep your filing and accountancy fees down a little bit. But secondly, it means we've got someone around the business who can be reporting back to us on a regular basis. And I think you need to really knuckle down and get to grips with that financial reporting. Now, I appreciate that sometimes these things aren't easy for us to wrap our heads around. I know there are a disproportionate number of people who struggle with written communication or struggle with numeracy in our industry. We attract those kinds of people because we're very hands-on and very creative. But you need to get to grips with it. This is your job as a business owner. And that means investing in your education on finance. And I don't see anybody spending anywhere near enough on this. We're very quick to take training on the latest colour techniques or take training on the latest microneedling techniques or take training on the latest injectables. But guess what? None of that means a damn thing unless we are financially fluid, soluble and profitable. So that means we've got to be investing in our financial management as well. And that means I'm afraid taking some workshops and courses that don't sound very sexy. Sometimes we just need to spend the money and we need to keep pushing until we understand. It's very easy for us, I think, to feel very stupid when we're talking to professionals around money. And what we do is just kind of pretend and nod in the right places, pretend that we understand and then move on. And that's a massive mistake. We need to keep asking questions and keep asking for that information in a different format until we understand it.

Because we've got to get to grips with the numbers. We've got to get to grips with financial analysis and key performance indicators. You need to know the numbers in your business and you need to know the numbers that are important in your business. For example, your average bill, your utilisation, your retention rates. These are vital for your long-term future. And I ask a lot of salon owners every single day what those figures are and they don't even have a clue. I don't mind if you say it's somewhere around the $45 mark. But if you don't know what your average bill is and you haven't looked at it for quite some time, I'm afraid you're on a hiding to a very poor financial performance. So you've got to use those financial skills. You've got to use those financial figures and key performance indicators to help you steer your business. And if you don't understand the information that's being given to you from your bookkeeper or your accountant, ask for it again. Ask for it in a different format. Ask for it to be explained in a different way. I had an amazing accountant who put together a dashboard for me with my key performance indicators. And I could tell at a glance where the problems were. Because over time we came up with a traffic light system where if an indicator was green, I could kind of ignore it. If it was yellow, it might need looking at. If it was red, it was a problem in the business and I needed to dig deeper. So we're looking for that overall view so that we can dig down and identify trends and patterns in our revenue, in our expenses, in our profitability, so that those decisions that we're making in our business are data driven. They're improving the financial performance of the business, steering the business in a profitable way. So essentially there's two things that we're looking at when we talk about financial management. We're talking about the money that comes into the business and we're talking about the money that flows out of the business. So this is cash flow management. And what we need to get to the stage of is where we've got a kind of cash flow projection so that we can anticipate how much money is going to come into the business, how much money is going to be going out of the business. That means we know when it's safe to invest in the business, to take profit out of the business, or even when we might need to make arrangements. So if, for example, you can see that there's a big tax bill coming out in April, let's say we're in February, there's a big tax bill coming out in April and not enough money coming in during January, February and March, then we know we've got to make an arrangement with the bank for an extended overdraft or raise some finance in order to cover that tax bill.

And with a cash flow projection, we can anticipate those problems. And as a slight aside at the moment, so we can thank COVID-19 for this little lesson, I think you should be putting together a little emergency fund to help act as a buffer in the business. So start putting 1% or 2% of your takings away each month into what I've called my war chest. But essentially, it's a fund for your unexpected expenses or unexpected downturns, a little buffer between you and financial problems. And we'll know when we're going to need that buffer, because our cash flow projection will tell us. So how do we take care of the money coming in to the business? Well, essentially, what we're talking about is two things, pricing and profitability. So pricing, I have ranted and raged about pricing for such a long time. But if nothing else, take this from this podcast, you need to be regularly reviewing and adjusting your pricing. Not just based on what's going on in the marketplace and what your competitors are doing, but actually based on your profitability and what you need to do to make sure that your services and products are generating the margins that you need to hit your goals. That means then we're also looking for opportunities to upsell and cross sell. And we've talked about selling on this podcast many, many times to increase revenue. But what we're trying to get to with our pricing strategy is a place where all of our services are equally profitable. There aren't any stinkers on the price card. And I see this a lot, particularly in beauty therapy salons, where they're still carrying out lots of nail services. Unless you specialize in nails, unless you've really got your speeds up, it's really hard to generate the profit that you need on nails. There's way too much low price competition out there. So quite often I find that people are filling up their days doing nails and then struggling with profitability. And actually, if I take a closer look at the business, I can identify 15 other services they could have been doing in that time that would generate lots more money for the business. And that's what we're trying to get to is an equal level of profitability for our services or services that get us closer quicker to our financial goals. Are you feeling like you're stuck in a rut, like you're just going through the motions or that whatever you do, the next level in your business stays just out of reach?

Well, it's time to shake things up. With one-to-one coaching, you'll have buckets of support, inspiration and accountability to help you bring the buzz back to your salon business. Whether you're looking to achieve a specific goal or just feeling that things are lonely at the top and you want someone to coach you to be the best version of yourself, I am here to support you. And don't worry, even though it's called coaching, I won't make you join a gym and I will never suggest you give up your Toblerone habit. What's the alternative? More of the same? Come on, you can do better than that. Ping me an email at phil at buildyoursalon.com with the subject line coaching and I will send you all the details. I can't wait to help you on your journey to salon success. Once we've identified the highest profit services, not just the highest revenue services, mind you. Let's face it, lots of those injectables have got a lovely high price tag. But my goodness, the costs that go with those injectables can be extortionate as well. So once we've identified those high profit services or high profit products, they're the ones we need to be promoting. It's not enough to look at your marketing strategy and say, oh gosh, do you know we haven't done any facial waxing promotions for quite a long time. Let's do one of those. No, we should be looking at the stuff that's actually getting us closer to those financial goals a lot more quickly and promoting them strategically. And of course, we can't complete a conversation around profitability without talking about the money that's coming out of the business. So what are we talking about then? Well, we're talking about expenses. We need to be managing our expenses as much as we manage our income. And that means budgeting. And budgeting is not fun. It's not sexy. But luckily, it's something that we can set up once and then it takes relatively little maintenance. So once your budgets are set up, tracking and reviewing those expenses becomes just a few minutes per month so that we can identify areas where we're underspending, overspending and ideally looking for areas, of course, where we can be cost saving and increasing profitability. So we need strategies to reduce our unnecessary spend, of course, maybe even getting a bit of leverage, maybe even using our negotiating skills with our suppliers for better pricing or better discounts. Don't be afraid to ask. Even if you are a relatively small business, don't be afraid to ask. I had an amazing set up with a colour supplier of ours for quite some time where we put together a promotion around a conditioning treatment. And conditioning treatments in hair salons are a licence to print money, darlings.

They really are. They take very little extra time, can be very nice high profits. And they were basically launching a new product. We bought into this new product and it had gone down a storm. We were throwing this. We were massaging till those poor apprentices' knuckles were raw. And then, of course, the promotion finished with our supplier because this was a new product they were bringing in. But we'd priced our promotion around it. So I had a word with the supplier and I said, look, this has gone really, really well. So much so that I don't want to end it. I don't want it to be a one month promotion. I'd love to run it for the next six months. Can you honour the prices? And they did. Just to shift a bit more product, sometimes it is an option to negotiate with our suppliers. Not always, they may well say no, but what have you lost by asking? But don't just think that budgeting is about reducing costs. Sometimes it's about identifying areas where we're not spending enough. So, for example, if we've set a marketing budget and we're not spending that marketing budget, well, in some ways we could say, great, we've got a cost saved. We've been a bit more profitable this month. But actually, marketing should be an investment in the future success of your business. So if we're not spending enough, well, don't be surprised if the, let's say, the flow of new clients over the next couple of months starts to fall away a little bit too. So if you've set a budget, let's try and get as close to that budget as we possibly can. And of course, then it's about making sure that we get as much bang for our buck. Let's say on that marketing budget, we need to be making sure that we're spending that marketing budget effectively. So we need to be setting financial goals inside the business and regularly monitoring your progress towards them. And I would be looking at this monthly. Some of those expenses don't come out of the business monthly. Let's face it, they could be quarterly or annual. But I think really we should be sitting down each month and making sure that we are on track as far as our spending is concerned. Part of that is our inventory management. It's about our stock control. You need some kind of system to monitor your stock levels and the stock turnover. We need some kind of system for regular stock takes to make sure that we're identifying any loss or any waste. I appreciate it's not much fun. I wish somebody, one of you software companies, please reach out. Let me know that you've come up with an amazing solution for stock control. I think there are massive opportunities being missed there. It does seem to be really, really tricky. And in fact, so many times we've gone back to old school.

You know, we've stopped using the stock management system on our salon software. And instead, we've gone back to a clipboard and a check against the stuff that we've got in stock so that we can identify what needs reordering. But ideally, what we're looking for is also a speed of sale. And you will need your salon software system for that. Speed of sale, I've talked about on a previous episode. But essentially, it's a measure of how quickly a product or a sub range or a range of products is selling. And that means that we can start to spot slow moving inventory. That gives us an opportunity then to either promote it or increase our product knowledge to get stuff shifting quicker, or maybe even minimising or even deleting stuff that is now obsolete in the business. But all of this is to get us towards our financial goals. And what does that mean? It means you've got to have some bloody financial goals, darlings. It means we've got to go through a financial goal-setting process, a long-term planning process. And so many people have these kind of woolly goals for the next three months, and they want to, I don't know, increase their staff count by one, and they want to run a promotion on facials in month two. But they haven't got financial goals in place for their business. This has to come from your long-term plan. That means taking a step back from the business, figuring out what you want the business to provide for you, not just this month, not just this year, but in the long term. What's the end game for your business going to look like? Are you planning to retire and have the place completely staff run? Are you planning on some kind of business succession? Maybe it's going to be a family business where a family member is going to step in. Are you looking to sell it as a going concern? Or is the plan that you retire one day, hang up the keys, close the door, and then the business folds with you? You need to know what that end game looks like so that we can review and adjust our financial goals and our financial plans to meet that end game. And also that means then that we're going to be looking at what we want to take out of the business. Well, once we know what we want to take out of the business and we know how profitable a business is, that will dictate what your turnover needs to be. Then we can start making financial goals for different sectors of the business and different services. Sorry about that rant towards the end there. I think we got off remarkably unscathed considering we are caffeine free today. I hope that's been helpful to you. I hope it's inspired you to just take this a bit more seriously. And I don't see salons taking this seriously enough. Yes, they're losing sleep over it, but they're not taking it seriously enough to actually invest some time.

Maybe even invest a little bit of money in your knowledge and understanding to get this stuff nailed down. This is when we go from being operators in our business to being business owners is when we get this financial management in place. Of course, if there's a topic you'd like me to cover in future, please reach out phil at buildyoursalon.com. Also, maybe take two minutes to leave me a little review on this episode. Perhaps share it with someone that you think needs to hear it. I always think five stars look best on the reviews, but I love reading them. Absolutely makes my day when I get a nice glowing review popping up in my feed. Just seven short days until I'm coming in years again, my darlings. Until then, take care. Sit down and see what's going on with the queen of salons. Hair and more successful tips for business owners. All on Build Your Salon.