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The Debt-Free Salon or Spa


For salon/spa owners, the closest thing to owning a home with no mortgage is owning and operating a business that is 100% debt free.

The concept of being debt free runs contrary to typical business thinking. If you want to open a salon/spa, you’re going to need financing. So, you go to your bank, or some lending entity, and, if qualified, secure a loan.

Next, you use the loan proceeds to build out space, buy equipment, furniture and fixtures. Hopefully you saved some of that borrowed money for operating expenses, marketing and payroll.

So, from day one, you have to make that monthly loan payment plus interest.

Next comes credit card debt. Those easy-to-use pieces of plastic with preset credit lines that entice you every few months to take cash advances with no interest for six months or so.

Next thing you know, you’ve got balances on multiple credit cards charging loan-shark interest rates and minimum monthly payments that barely reduce the principal balance.

And when cash gets excruciatingly tight, desperate owners turn to “credit card receivables financing” companies that give you cash advances on service and retail sales clients pay for by credit card.

  • To ensure repayment, these companies take payments directly from the credit card receipts before they hit your checking account. The outcome is typically cash flow that’s tighter than ever.

Yes, borrowing money and paying it back with interest is how business gets done.

The danger is when debt becomes excessive and sucks the financial life out of the salon/spa. That’s when debt turns into stress.

In stark contrast, when your salon/spa is debt free, its financial and operational picture is quite different.

Debt free means:

  • No bank or business loan of any kind.
  • Credit card balances are paid off completely every month.
  • All bills and expenses are paid within 30 days.
  • Asset purchases (inventory, computers, equipment, fixtures) are paid for in cash.
  • Refurbishing or expanding your salon/spa business without financing.
  • Maintaining a cash reserve of 3–4+ months of operating expenses
  • More of the Net Profit of the salon/spa becomes cash.
  • Equity on the Balance Sheet improves, sometimes significantly.
  • You can take advantage of unique opportunities simply because you have the cash to do so.
  • Life is just better without the financial stress associated with debt.

Here are some No-Compromise Leadership strategies to get, and stay, debt free:

  • Create and live your Cash-Flow Plan: Your Cash-Flow Plan is your financial guide to monthly/annual service and retail sales targets, and your budget for all operating expenses. If it’s not in, and doable, on the Cash-Flow Plan, you can’t spend the money. Simply put, keep spending under control.
  • Get and stay financially lean: Just because you have the money, doesn’t mean you have to spend it. Again, this is the discipline of living your Cash-Flow Plan. Don’t over hire. A bloated payroll and 60% productivity rate is asking for trouble. Don’t over stock. If you have three hair color lines, get down to two, and if possible, one. Same goes for retail. Duplication of inventory means cash is sitting on the shelf.
  • Create and live your Debt Reduction Plan: Your Cash-Flow Plan should include one or more line items for monthly debt reduction of bank loans, credit cards and other debt. Be careful not to be overly aggressive to the point where you have insufficient cash flow to fund operations. The next few bullets drill deeper into debt reduction.
  • Eliminating credit card debt: First and foremost, DO NOT charge anything to a credit card that you can’t pay off at the end of the month. (Purchases must be budgeted in the Cash-Flow Plan.) Start paying down the credit cards with the highest interest rates. As each credit card balance is paid off, cancel the card and enjoy the thrill of cutting it into tiny pieces. One company American Express card and one company Visa or MasterCard is sufficient.
  • IRS debt: If you used your employee’s Withholding tax to pay bills — your salon/spa is in trouble because IRS penalties and interest add up fast making your financial hole even deeper. Other than keeping current on bank loans, methodically eliminating IRS debt is a top priority. What IRS looks for is consistency in paying down the debt. If you cannot be disciplined enough to adhere to the payment schedule, IRS has options that banks and other lenders do not. They can access your bank accounts, business and personal, and clean them out. Being incorporated doesn’t protect your personal assets and bank accounts from IRS. Even if you go out of business, IRS debt stays with you., Never fall behind on Withholding tax.
  • The crucialcash or add debt” question: If you want or need to buy something, ask yourself this question; “Do I want or need bad enough that I’m willing to add more debt to the company?” If you truly need that something and have sufficient cash reserves to draw from — pay cash. If you don’t have sufficient cash and want to buy that something by adding debt, it better be a “gotta have” — and not a “nice to have.”
  • Profit isn’t cash — BUT: At Strategies, we teach that “profit is not cash.” This simply means that whatever you generate in Net Profit, it doesn’t mean that all that profit is cash in your bank account. When you make a loan payment, the principal portion is paid for out of Profit. Likewise, when your company is debt free, the cash that would have gone toward paying the principal now remains part of Profit. This is how a business turns Profit into Cash.
  • It’s about your Balance Sheet: For a company, the Assets are in the form of cash, inventory, equipment, furniture, fixtures and lease hold improvements. Being debt free means that the company has minimal liabilities. It’s the same as owning a home without a mortgage where the total value of the property (the Asset) is Equity. The lower your liabilities, the greater the equity.

Here’s our challenge to you: If your salon/spa is debt free, you’ve earned one big “CONGRATULATIONS.” But the chances are you’re not debt free. Depending on the amount and type of debt, that’s okay too.

What I want you to consider the extraordinary position your salon/spa business would be in if it were debt free. Your level of financial stress would be massively reduced.

Begin the process. It will likely take many years to eliminate the debt, but your company will be getting progressively healthier in the process.

I can tell you from personal experience that my company, Strategies, has been debt free for many years. It’s something we take great pride in and fiercely protect.

If you want to know how we can help you and your salon/spa to be debt free, click here.

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