How to Successfully Navigate High Inflation — and Possible Recession
As a salon/spa owner, you had to navigate your way through the Covid shutdown and reopening.
Today, continuing supply chain shortages, insanely high gas prices, and high consumer spending, are driving the highest inflation rates in decades.
Add in the fallout from the war in Ukraine, record-breaking summer heat, and worsening drought conditions from climate change, and you have a smorgasbord of stuff to stress over.
The good news is that consumer spending, despite the Fed’s interest rate hikes, remains strong.
The bad news is that high inflation means everything costs more.
Economists fear consumers and businesses will start putting the brakes on spending. And that means recession.
HEADS UP: You can choose to hang onto the old belief that salons are recession-proof, but today, doing “business as usual” in turbulent financial times is seriously shortsighted. Simply put, thinking “everything will be OK” is not a strategy.
So exactly how do you best position your salon/spa to deal with inflation … and not get caught off guard should a recession occur?
Here are five straightforward strategies to neutralize the impact of both inflation and potential recession:
- Plug the cash leaks: The absolute smartest and most prudent strategy to neutralize inflation is to go through your monthly Cash-Flow Plan and Profit and Loss Statement line item by line item and trim all unnecessary expenses. The last time you probably did this in earnest was during the Covid shutdown. And I bet you found plenty of cash leaks to plug. Guess what? Time, new priorities, and distractions create opportunities for unnecessary cash leaks to creep into your spending and grow. Often, these cash leaks are so subtle that they become regarded as a “regular” expense. KEY: Remember, inflation is also increasing the cost of unnecessary cash leaks. In 30 minutes, I bet you can find enough cash leaks to cut at least 4% from your operating costs. Imagine what you can cut in an hour? Get it done.
- Reduce, eliminate, and avoid adding debt: It doesn’t matter how profitable your salon/spa is, the more debt there is on your Balance Sheet, the tighter your cash flow becomes. Maybe that debt helped you start your business, do that needed refurbishing, buy new computers and equipment, or expand. But the longer that debt hangs around, the more interest you pay, and the longer it sucks cash from profit. KEY: If you’re fortunate enough to have extra cash in your cash reserve (we now recommend at least 4+ months of operating expenses), consider paying off as much debt as you comfortably can. If you’re considering adding debt (for any reason), remember that interest rates are climbing, and that money is going to cost you more. Avoid adding debt unless absolutely necessary.
- Lock in efficiency and consistency: Product waste costs money. Employees that struggle to work within time standards cost money. Low productivity rates cost money. Low prebook costs money. Low first-time and existing client retention rates cost money. Employees not charging the proper, or current, service prices costs money. Clients not receiving retail recommendations costs money. Not communicating daily progress to goal dials back urgency and costs you money. KEY: All the preceding profit-draining conditions are the result of broken, missing, and unmonitored systems. Systems create consistency and predictability. Don’t assume your systems are working if you’re not paying attention.
- Yes, you may need to raise prices … again: If you didn’t raise prices since Covid, what are you waiting for? If you did raise prices in the last six to twelve months, the inflation rate may be sending a message to raise them again. I get that you don’t want to upset your clients, but this is business. With the inflation rate nearing 10%, it’s cutting into your net profit. Net profit funds growth, raises, and expansion. Operating at a self-inflicted low net profit compromises the financial integrity and stability of your salon/spa. KEY: Do a simple cost-per-hour analysis to determine if rising costs have reduced your profit margins enough to warrant a price increase. Chances are they have. This is business. Raise your prices.
- Let your leadership determination and inspiration shine: There is no “set it and forget it” in business. There never was. As the leader, you set the pace of growth for your business. As the leader, you create and nurture your salon/spa’s unique culture. As the leader, you are the keeper of your salon/spa’s vision. As the leader, you coach and inspire employees to achieve their full potential. As the leader, it is your responsibility to protect the financial integrity of your salon/spa. KEY: If you’re in anything that resembles a “doing business as usual” mode, snap out of it. With high inflation and concerns that the economy may go into recession, now is the time to get on your leadership game.
Here’s my challenge to you: These five strategies aren’t just for inflationary times, they apply to any salon/spa that may have become a little too comfortable when it comes to systems, accountability, and leadership.
Take action now to neutralize any financial fallout that inflation may cause to your salon/spa — especially if the economy slips into recession.