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9 financial planning tips for salon owners

9 financial planning tips for salon owners

Salon business financial planning is an ongoing process. If you don’t have an accurate grasp of your financial situation, your business plans will be based on little more than guesswork. Ahead, Liz McKeon, a bestselling author, speaker, and salon coach, shares her insights on maintaining the financial health of your salon.

Running a salon is very time consuming, and it is tempting to devote the lion’s share of time and effort to developing your services, hiring the right team, marketing and finding customers.  As the owner, you will be called on to make financial decisions on a daily basis, therefore it is important to carve out some time to tend to the financial health of your company.

Financial planning tips for salon owners

Managing cashflow

Running a successful salon boils down to one critical point – making money.  Your money will work for you and your business will have enough when you give it energy, time and understanding.  It is your responsibility to know about your business financially.

A healthy and positive cashflow enables you to meet current obligations, such as paying suppliers and staff, while also building up a reserve for emergencies.  If cashflow is a challenge, your business will stall and your stress levels will suffer.

Start the discipline of a running a ‘cash flow analysis’, which tells you how much money is flowing in and out of your business.  This allows you to effectively plan for the future.

Keep an emergency fund

Always put a little bit of money aside in case an emergency occurs.  Despite the best planning, everyone runs into unforeseen costs or business emergencies. 

Minimise your customer acquisition cost

Know how much is costs your business in time and money to acquire a new client.  Always work towards minimising this cost by increasing your ‘word of mouth opportunities’.  Focus on retaining your clients by providing outstanding customer service and great quality services.  Do everything you can to make sure every client is happy leaving, wants to rebook and is delighted to send you hot referrals.  This will seriously reduce your marketing costs and maintain quality in your salon.

Focus on your core business plan

It is tempting to want to keep expanding when you first start a salon and get consumed with short-term profits rather than long-term success.  So, the best advice for new salons is to run a tight ship, when it comes to your finances.  Don’t overextend yourself with loans for “new ideas” that go beyond your initial business plan because you think it will make you rich faster.  Instead, reinvest your profits back into the business to stimulate growth.  Stick to your core business plan and focus on making it a reality before you take on any additional expansion goals for the business.  Your main focus is to create a solid and sustainable business for long-term growth and success.

Create a budget and stick to it

Don’t be tempted to spend more money than you have available, particularly when starting off.  Create a budget, become strategic with managing your expenses, ensuring that you don’t overspend and run into debt.  Avoid using credit cards to finance your overheads.

Setting tight, conservative budgets is a trademark of successful salons and it will certainly make running your business easier.  Your salon needs to be able to afford to grow and you must manage that growth.  Give value for money and charge what you are worth.  Determine what to charge based on your costs, your desired profits, the competition and your unique salon features.

Invest in professional financial guidance

If you find it hard to manage your finances, invest in getting advice from someone impartial, such as an accountant or a financial consultant.  You may have to pay a little extra for this professional help with the financial side of your business, but you will save money in the long-run and have an accurate budget to work with.  All of this makes planning for the future easier and a lot more manageable.

Create a cash flow projection

When it comes to financial matters, it is critical to create a cash flow projection.  This is based on payments you expect to get in the future and expenses you’ll face.  Cash flow projections help you make smarter financial decisions as a business leader.  You’ll have a good understanding of your sales goals and the levels your outgoings need to stay at.  This type of planning will prevent you from running out of money.

Your financial consultant can help your create your cash flow projections.

You can then take your cash flow projections and work with the numbers within a marketing context.   For example, what occupancy is required on a daily basis to ensure you achieve your projections and what are your marketing plans to ensure you have enough clients every day to achieve your targets?

Once you have your cashflow projections in place, you have a guideline that impacts on every financial decision you make.  As business changes, revisit your cash flow projections and adapt accordingly.

Know your numbers

Review your numbers regularly, in fact review your numbers daily.  At a minimum, know your sales, expenses, wages and bank balance.  Monitoring sales daily helps you to purchase efficiently so you have enough stock to meet demand, but excess money is not tied up in overstock. Keep more cash in your accounts by staying on top of when your bills are due for payment.  If you have positive cashflow, pay on time, but not early unless you are getting discount.

Set your Goals

Separate personal and business goals, as blurring the lines could mean compromising some aspects of your finances for another.  Of course, you are building the salon business to make money to forward your personal financial goals.  But, if you don’t distinguish between personal and business goals, you may end up compromising both.

Liz McKeon offers training courses for beauty business owners, managers, and staff. If you’re unsure of your needs, get in touch via team@lizmckeon.com for a complimentary consultation.