Six Critical Lessons for Creating Salon/Spa Profit
Salon/spa profit can be a strange thing.
You can fight and obsess to ensure your company generates profit, yet not see any of that cash in your bank account.
In fact, you can be profitable and broke at the same time.
Even scarier, you can have negative profit for extended periods and still be in business.
If these scenarios have you reaching for the panic button, have no fear. While these situations indeed can become a reality, the good news is that they can be avoided with some good discipline.
Here are six no-compromise lessons for creating and maintaining healthy profit in your salon/spa:
- Lesson One: Profit is a measurement...
Leaders monitor and drive productivity rates, client retention rates, gross profit margins, payroll costs, product costs, and other key benchmarks. Profit is simply another measurement to show how well the company manages its variable and fixed costs over a specific date range, typically by month, quarter, and fiscal year. The game is pretty simple; spend less than you take in, and you will have profit. The most direct path to profit is relentlessly driving it just like your productivity and client retention rates.
- Lesson Two: Profit isn’t cash - and never will be...
Profit is an “abstract.” Profit is not cash in the bank. For example, if you sell a $100 gift card, the entire transaction occurs on the Balance Sheet. Cash goes up $100 and Gift Card Liability goes up $100. Nothing happens on the Profit & Loss Statement until the gift card is redeemed and officially recorded as a sale. But that doesn’t mean the $100 is still in your bank account patiently waiting to be called to active duty. The sales transaction (income) is connected to profit - not cash in the bank. Principle payments on debt occur on the Balance Sheet. Only interest expense appears on the Profit & Loss Statement. In this case, profit helps to pay down debt. In other words, continued losses will force you to incur more debt. As stated in Lesson One, treat profit as a measurement; somewhere in that profit measurement, you will find cash.
- Lesson Three: Profit is behavior driven...
Profit & Loss Statements and Balance Sheets are a numeric readout of your thinking and behavior as a leader and a company. The most challenging job we have coaching leaders, especially entrepreneurs, is getting them to practice and live the fiscal behaviors that create profit. Unchecked and unjustified spending and financial decisions can and will keep a company in a perpetual cash crisis. Every expense must meet the “gotta have” or “nice to have” test. The problem is entrepreneurs can justify anything. Nice to have’s can wait. Gotta have’s need to be funded out of cash or by incurring more debt. If you’re already burdened with debt, make do with what you have.
- Lesson Four: Profit is systems driven...
You don’t go on a long voyage without a plan consisting of maps, fuel, supplies, backup equipment, and contingencies. The plan is the system. The map is a system. Efficient use of fuel (cash) is a system. Everything is sequenced out in a system. Profit is no different. If you hate numbers and refuse to build and follow a cash-flow plan or budget (we can help you build one here), you may create profit out of dumb luck. But profit is a nasty little beast that avoids capture. Systems are the fiscal tools that create profit. Stop fighting them. They’re not difficult to master. It’s changing your thinking and behavior that’s difficult.
- Lesson Five: Profit can and must be turned into cash...
As stated earlier, you can be profitable and broke. Turning profit into cash is where the Balance Sheet comes in. If your Balance Sheet is showing more assets (what you own) than liabilities (what you owe), you have positive equity. (Assets = Liabilities + Equity) If your liabilities exceed your assets, your business is unhealthy and probably starving for cash. Excessive debt saps the financial life out of a company - no matter how busy and successful it appears to the rest of the world. Pay attention to your Balance Sheet. Pay down rather than add debt. Build cash reserves in a separate account and protect it from your entrepreneurial seizures. A few thousand dollars here and there will begin to add up into what I call “sleep good at night money.” If you don’t understand what your Balance Sheet is telling you, you need coaching now.
- Lesson Six: Easy come - easy go...
Profit is something you fight for - especially in these economic times. Building cash reserves is something you discipline yourself and your company to do. I’m talking military-grade discipline here. Why? Because cash flow and cash reserves can go “poof” in a heartbeat. All it takes is a little leadership complacency or a bad decision to throw your company into a cash crisis spiral.
Profit is a beautiful thing to be cherished and protected. Otherwise, the profit beast will get out of control and wreck your world before you can say, “Cash flew where?”
Need help navigating all this? We'd love to help. Click here to schedule a free strategy session and let's map out a game plan to create predictable profit in your salon/spa.