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How Systems Drive Salon/Spa Profit: PART TWO
November 16, 2015 | By Neil Ducoff | No Comments
Systems bring structure and discipline to the profit creation process. Accuracy and extreme attention to detail is nothing short of non-negotiable. As a business coach, I’ve seen more than my share of “garbage in, garbage out” accounting and financial reports. Blatant errors, improperly posted or categorized entries, expense line items that no one can explain, and huge miscellaneous accounts, are just a sampling of the financial nightmares that regularly occur when poorly designed systems exist. The end result is totally useless financial reports. You just can’t make the best financial decisions with bad data. And with all due respect, sloppiness in the bookkeeping office is a darn good signal that compromise exists at the leadership level. Otherwise, such nonsense would never be tolerated for even a nanosecond.
Profitability systems extend far beyond general bookkeeping. When revenues are generated, there needs to be financial systems in place to ensure proper reporting. And wherever money is spent and purchases made, financial systems must be in place. Checks and balances, there is no other way to control and drive profitability.
Remember, a system is a set of procedures that, when followed, produces a predictable and consistent outcome.
Here is a quick 19-point hit list of profitability processes that must be systemized:
- Proper categorizing of revenue streams
- Invoice entry and generation (you just can’t have errors on customer invoices)
- Accurate and timely posting of payables (improperly categorized expenses will make your profit and loss statements useless)
- Deadly accurate processing of payroll and payroll taxes
- Purchase Order system to control EVERYTHING that gets purchased (If it’s not in the budget, it doesn’t get spent)
- System to run weekly financials – complete, accurate and on time
- Review of weekly “Actual to Budget” comparison reports
- Weekly accounts payable report (who do you owe money to)
- Bill paying: What’s the cycle? Who approves what gets paid?
- Periodic update of cash-flow plan and budget
- Competitive vendor cost analysis
- Debt management and reduction
- Inventory level management
- Creation of new project budgets
- Weekly leadership team cash-flow planning meetings (procedures needed to complete the meeting in 30 minutes)
- Scoreboard updating (daily/weekly/monthly)
- Financial performance data report distribution to managers and staff
- Expense reports: Who’s approving them? Are expenses verified and legitimate?
- Office supplies: What’s the budget, the system, and who’s accountable for it?
Depending on the size of your business, this may come across as totally trivial. It’s not. There are still multitudes of salon/spas that still pay bills and write checks by hand. Today, accounting software like QuickBooks and online bill paying make hand written checks something you’d see on display at the Smithsonian Institution. Hand writing checks may have been fine for Fred Flintstone, but not for anyone doing business in today’s automated world.
Paying bills through your accounting software is a non-negotiable because of the speed and accuracy to financial reporting that computer checks and online payments deliver. Pay a bill by computer and the first thing it asks is, “Who are you paying?” Now you have vendor tracking. Next, it asks, “How much?” Now you have an expense amount. Then it asks, “What expense account should it be allocated to (i.e.: rent, office supplies, cost of goods sold, etc.).” Insert your computer checks and hit “print.” “Cash – Checking Account” on the Balance Sheet is reduced by the amount of the check and the expense is recorded on your Profit and Loss Statement. Out comes the check nicely addressed and ready for a double-window envelope.
I’ve been pounding away at running your financials weekly. The only way to do this is to totally and completely (that means 100%) automate all of your bill paying and accounting procedures. Until this is accomplished, you’re never going to see the whole picture.
Want help getting your systems in place and increasing profits? We can help. Schedule your Free Coaching Call today, and learn how Strategies can help you eliminate the inconstancies and drag that are holding back the growth of your salon, spa or medspa.
Read Part One of this article here: Disciplines of Creating Salon/Spa Profit
Read Part Three of the article here: Finding Your Salon/Spa Profit Sweet Spot: PART THREE
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