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Salon/Spa Financial Literacy: Why I Am Concerned
November 18, 2013 | By Neil Ducoff | 2 Comments
This blog post is for all leaders.
It doesn’t matter how new, old, small or large your salon/spa is, financial literacy matters.
Because too many leaders think they can run profitable companies without paying attention to their financial reports.
As a company that is coaching and teaching salon/spa owners every day, we are consistently finding that owners and leaders cannot answer the most critical … and simple … financial questions.
And this is not a new phenomenon. But this consistent exposure through our coaching and training work, and over hundreds of complimentary coaching sessions by Strategies coaches and myself has us seeing red flags flying all over the place.
Every owner and leader should be able to rattle off deadly accurate responses to: current year-to-date revenue (with service and retail percentages), payroll percentage, gross profit margin, general and administrative percentage and net profit. And only one out of ten could answer what percentage of goal their company is at for the current month. Translation: One out of ten do not do monthly projections or keep scoreboards. I don’t know about you, but this scares the heck out of me.
So here is my hit list of financial literacy non-negotiables:
- Learn how to read: Your Balance Sheet and Profit & Loss Statement tell the story of your leadership thinking and behavior. They tell if you’re paying attention to your company’s financial reality or putting your faith in the universe to keep your company financially viable. For 26+ years, I’ve watched leaders at Strategies Incubator courses freak out when they finally learn what their financials have been trying to tell them. If you don’t know what every line item means on your Balance Sheet and Profit & Loss Statement, it’s time to make peace with your numbers. It’s time to stop making excuses and living in denial. No compromise.
- Get them – use them: Every Thursday for the past 20 years, our Strategies bookkeeper runs a complete set of financial reports. We pay attention to our critical numbers. We manage cash. This weekly practice has helped us navigate through financial challenges and keep the company rock solid in good times. In stark contrast, there are owners and leaders that barely glance at their financial reports – if they even read them at all. Financial reports are not optional. They represent your company in numbers. They tell the truth about your ability to lead a company. Get them – use them. No compromise.
- It’s about the Balance Sheet: The Balance Sheet tells how financially healthy your company is. It details the choices you have made about managing assets and debt. It tells what your company is worth. If that isn’t reason enough to learn and pay attention to your Balance Sheet, I’m at a loss because one day you need to slide it across the table to a potential buyer. Do you want all of your years of hard work to end up worthless when it’s time to sell? It’s about the Balance Sheet. No compromise.
- Micromanage cash: If you run your company out of your checkbook, you’re cruising for a financial bruising. There is a reason that “Cash” is the first line item on your Balance Sheet. Cash truly is king. Cash is confidence and security. Cash is sleep good at night money. If you do not have a Cash-Flow Plan that projects revenues and expenses, you are flying financially blind and will be unable to influence the numbers that end up on your Balance Sheet and Profit & Loss Statement. Micromanage cash. No compromise.
- Debt can kill: It is truly sobering to see how many companies are overburdened – even smothered – in debt. If your Balance Sheet has a list of multiple credit cards with balances due, you need to take immediate action. Strategies can help – talk to us about coaching your company back to financial daylight. If you’re in debt to the IRS, the clock is ticking. Get a handle on your company and set a plan in place to eliminate debt. No compromise.
- Wake up your accountant: I’ve seen too many lazy accountants that don’t pay attention to the financial health of a company simply because their leaders aren’t paying attention either. Just recently, a coaching client’s accountant wrote me and said, “Since no one was asking for or looking at reports, I didn’t supply them.” To me, that is unethical and irresponsible – and it’s more common than you think. I praise accountants that pay attention and work with leaders by analyzing and offering guidance on what their financial reports are telling them. If you have a lazy accountant, you need to wake up first – then fire him or her. No compromise.
- Open book shares the load: Growing a financially viable company is tough work. Owners and leaders cannot do it alone. Open-book management is an approach to doing business that shares the load by engaging employees in the process. I get that there are owners that just can’t fathom sharing any of their company’s financial realities with their employees. If you are one of them and like carrying 100% of the financial load and stress, go for it. At Strategies, my team obsesses over the numbers as much if not more than I do. We all work hard to push the numbers in the right direction. We keep nothing behind the curtain. Everyone takes ownership in the numbers. It’s a process. Learn how to be an open company. No compromise.