Do you follow horse racing?
Ever wondered why sometimes the horses wear those funny hoods that only allow the horses to see forward? It’s so the horse stays focussed, they just keep going, heading for the finish line and can’t see what is happening around them!
That’s great, if you are a horse trying to win a race, but not so great if you are running a business, especially a salon or beauty business.
As independent business owners and managers we often work within the business, as a therapist, stylist, nail technician etc. If you are like a lot of salons then you are the primary worker in the business and possibly even the only worker.
When this is the case, it is often extremely hard to step out of that day-to-day worker role and look at your business from a higher level. As an owner, an investor, a client or a team member, you have your blinkers on.
But . . . it is so important that you do this, ideally at least twice a year, because if you spend all your time working ‘in’ your business only focussed on the day-to-day. Then by the time you notice something is wrong, it may already be too late and things may be extremely difficult to put right.
That’s why todays article is all about taking a small amount of time to check on the health and performance of your business, to see how it is doing both financially and also emotionally.
Emotionally . . . . a business? This might sound strange, but stay with me for a minute. . .
Today we are going to look at a simple exercise to evaluate the performance of your business overall, to identify any weaknesses and pinpoint areas that might need some attention.
In the second part of this article, I am going to share with you the one simple financial number you can measure to easily to keep an eye on the financial health of your business; even if you hate maths and have never read a financial report in your life.
How Does Your Business Feel?
It might seem a strange concept to evaluate your business emotionally, but when working with salon and spa owners, I find all the time that financial reward isn’t the primary reason they started their business.
For that reason, while it is important to be financially viable, most normal business measures like year-on-year growth, debt to equity ratios, retail to service performance and so on, may not be the most important thing.
So to look at how your business is doing from a holistic point of view, we need to first look at “Why” you started your business in the first place, what were your goals?
If you are like many salon owners out there, your answer may never have been written down on paper, almost certainly not in a business plan, it may even have been more of an internal, possibly unconscious reason involving a combination of:-
– wanting to help and serve people
– work flexibility
– more time with family
– passion for what you do
– personal challenge
– seeking a sense of accomplishment
– or a million other things …
I can’t possibly identify every single reason or combination of reasons that you decided to become a salon or beauty business owner, but I have created a fairly simple set of questions that apply universally that will give you a clearer idea of how your business is doing from an emotional point of view.
The Questions . . .
Answer the following ten questions with a score of 1 – 5 where 1 = Extremely Unhappy and 5 = Couldn’t be Happier.
Try not to think about your answer for too long . . . maximum 30 seconds per question. It’s best to go with your gut feeling on this one as it often gives the best insight.
Whether you are a solo therapist or home salon owner or you have a team in place, answer these questions for you but about “your business” as a whole.
(1) How do you feel about the amount of time you spend at work?
(2) Are you happy with the amount of time you spend working “on” your business as opposed to working “in” your business?
(3) Are you happy with the way your team works together? (Do they help and support each other)*
(4) Are you pleased with the number of clients your business has?
(5) Are you happy with the level of new clients that your business attracts?
(6) How happy are you with the level of profit that your beauty business makes?
(7) How would you rate how you feel about the prices you charge compared to competition in your area?
(8) How do you feel about the future out look of your business?
* If you don’t have a team in place at your work, how well are you supported by your partner, husband, wife or family. How well do you work with external team members like your accountant, bank manager, cleaner, laundry company, product suppliers etc.
Scoring Key :
8 to 20 – Things aren’t going too well. Your business has some pretty big areas of concern that need to be addressed immediately. You might want to consider getting some help maybe from a business coach?
21 – 28 – Things seem to be going alright. You have the fundamentals covered and things are ticking along, but there is room for improvement and be careful you don’t get stuck in a rut and become complacent.
29 – 40 – Things are going pretty darn well! Your business is in good shape and you have a decent handle on things, but maybe a little fine tuning could get your score even higher?
I like to take raw data like it an present it in a visual way, as I often find this helps creatives and artists (those that tend to work in the beauty industry) to understand the information better.
In the Freebie Download for this article, as well as a copy of the question sheet above, you will also find The Salon Business Wheel on which you can plot your answers to each of the questions above.
Mark the score for each question on the wheel and then join up the points as in the example below . . .
. . . this should reveal just where things might need some attention within your business!
Money Makes the World Go Round!
While I completely inderstand that for pretty much all salon and beauty business owners, money is not the driving force behing what you do. Businesses at the end of the day need to make money . . . they at least need to cover all their costs, otherwise they become unsustainable and only trouble lies ahead for you!
But numbers are boring . . .
Personally, I would disagree (I believe I have previously confessed to being a bit of a numbers geek), but to a lot of people they are dull, mysterious or down right scary . . . particularly when you refer to them by their businessy name of ‘financials‘!
Now if I were to start talking about Profit & Loss statements, Balance Sheets and Managements Accounts I would likely lose you right now . . . but wait!
I am not going anywhere near these terms and the good news is that I am going to show you the one straighforward financial indicator that you can keep an eye on daily. It takes under a minute, is easy to set up and if you track this one number . . . it means your business can’t possibly go too far off course financially.
This one number is called your Daily Breakeven Number.
Do you know what your Daily Breakeven Number is for your salon?
To be totally clear, your Daily Breakeven Number is the amount of money you need to make each day your business is open to cover all your costs.
I have highlighted “all your costs” above, because to some people this can mean different things, you need to include everything, absolutely EVERYTHING here related to your business to make sure your Daily Breakeven Number is accurate.
Fixed Costs – Ok . . . so I said I would stay well away from financial terms, but this is an easy one. Fixed costs are everything that you would have to pay for in your business, whether you had a full appointment book or no clients at all.
Examples of Fixed Costs are Rent/Mortgage, Bills (electric, gas, water, telephone, internet), Business Rates, Insurance etc.
Variable Costs – These are the costs that can ‘vary’ depending on how busy you are . . . they can be reduced if you are a little quiet, but will increase as you get busier.
Examples are professional stock, consumables (cotton wool, spatulas etc), laundry, wages, commissions and so on.
So here is what I want you to do . .
For your fixed costs I want you to dig out all your bills, electric, water, gas, telephone, Television (Satelite or Cable), internet, rent/mortgage, everything that you HAVE to pay for usually on a monthly, quarterly or annual basis.
I need you to get to an annual figure for each item . . .
So if you pay something monthly, multiply it by 12
If you pay something quarterly, multiply it by 4
If you pay something annually, leave it as it is!
OK . . . this may take a little bit of time for you to dig out your bills . . . but you only really need to do this once, so it is worth taking the time.
Now I want to get to your Daily Fixed Cost total. So add up all your annual costs and do the following:-
If you are open 7 days a week divide your total by 357*
If you are open 6 days a week divide your total by 305*
If you are open 5 days a week divide your total by 253*
* (For explanation of these number and other days per week calculations please download the Worksheet here)*
Keep this figure handy and move on to Variable Costs below.
Tip: If you have internet banking for your business account, you can simply look in there and identify all your monthly, quarterly and annual outgoings . . . just make sure you don’t leave anything out!
Warning: If you find just one monthly bill for something and you calculate the annual cost by multipling by 12, be careful. If you happen to find your summer gas heating bill and use this to work out your annual bill, this could be much lower than in winter when your bills will be higher . . . so try to make sure you find your annual bills or all your monthly bills if possible.
Your variable costs are a little trickier, these are going to increase if you get busier which is a good thing. Providing you have worked out your treatment prices correctly (click here if you want to check on this) then you should be alright.
However, we are going to include your wage bill here as even though it is a variable cost, you need to have the staff in place to be able to deliver treatments and therefore . . . have a viable business. So even if you work on your own, I want you to put in a figure for your wages. If you have a team, then we will need all of the teams wages.
We need a total daily figure . . . so if you know the hourly rate for yourself and your team multiply each one by the number of hours a person works in a week.
Take this weekly wage cost and divide this by the number of days you are open as a business in a week and finally add all of them together.
If you’d like a worked example of this to help you . . . . download the Worksheet!
You should now have two figures, one Daily Fixed Cost and one Daily Wage Cost. Add these two figures together to get your Base Daily Cost.
Take this base daily cost and then multiply it by 1.4 (to add on 40%). This 40% covers any sales tax, a contribution towards product costs, plus additional wage related costs like NI (if you live in the UK), also any commissions plus a little bit of spare change for any unexpected costs that might crop up.
The figure you are left with is a fairly accurate Daily Breakeven Number.
You could go in to a lot more detail, delve in to levels of professional sock cost, retail stock costs, ratios of the two, equipment failure rates, sickness cover and on and on. However, for the vast majority of businesses, this figure will be accurate enough.
Write this figure in big numbers on a piece of paper and stick it up somewhere in your salon where you and your team can see it.
You need to generate this much income every single day to make sure you are covering ALL of your costs.
This might be a wake up call for some beauty businesses and if it is then great . . . hopefully we have caught the problem before it has got out of hand and become too big to recover. If you think you are way behind on this daily breakeven number then you need to take a long, hard look at your business.
Do you need to save on costs, generate more income or possibly both?
If this has come as a shock, you feel stuck and you don’t know where to start and you want help right away, then there are some excellent salon business coaches out there and they don’t always cost as much as you think for a bit of help and advice.
It might seem counterproductive to spend more money after just realising you are not meeting your daily breakeven number, but you need help fast and a good coach will pay for themselves many times over with the knowledge, help and speedy assistance they can bring to your business.
If you don’t think a coach is for you . . . then at least speak to your accountant, they will be able to analyse your numbers in a bit more detail to tell you what specific areas you could stand to improve and maybe even give you a few ideas how you can get started.
If however when you work out your daily breakeven number, you smile in the knowledge that you hit this comfortably, then you my friend are in financial heaven. I’d caution you just to go over your figures once more to make totally sure you haven’t forgotten anything, but otherwise . . . well done to you!
So just how well are you doing?
If you want to know just how well you are doing against industry averages, I can give you some idea, but there are so many variations in country variations, business size, set up and offerings that it is important to know this is only a very general comparrison.
If you are a standard beauty salon (i.e. you offer body treatments, facials, nails and waxing type treatments) then if you are exceeding your Daily Breakeven Number by 10% you are doing just fine. If you are exceding it by 20% you are doing great and if you are 30% or over you are doing an amazing job and need to tell us all your secret!
If you are a Medi-Spa type of business (i.e. offering aesthetic treaments, injectibles etc) then you are doing just fine if you are exceding your daily breakeven figure by 20%. Your doing well if you are above 30% and if you are around 40% and over then you are doing an incredible job!
How to work out how much you are exceding your daily breakeven figure by?
You will need a calculator for this so grab your phone and find the calculator app – or just grab a good old calculator if you have one.
Take your daily breakeven figure and divide it by your daily takings which, providing you are exceeding your breakeven number, will give you a figure of less than 1.
Write this number down so you can remember it.
Next divide the number 1 by the figure you just wrote down.
Then take 1 away from the number on your screen (i.e. hit – 1) and multiply by 100 to get the percentage you have exceeded your daily breakeven number by . . .
Jane’s daily breakeven number is £357 and today she took £412 in total takings.
£357 / £412 = 0.8665
1 / 0.8665 = 1.1541
1.1541 – 1 = 0.1541
0.1541 x 100 = 15.41%
Jane exceeded her daily breakeven figure today by 15.41% . . . Good job Jane, but there is room here for improvement!
So just how is your business doing? Don’t forget you can download my worksheet for free by clicking here download my worksheet for free by clicking here which will make the questions and calculations much easier.
Email me with your results or post them in the comments section below . . . I’d love to know how you get on.
So today we covered, ways to see how you and your business are doing ’emotionally’. Hopefully I have helped to either reassure you that things are working just as you want them to be in your business or I have helped you to see what areas could do with some improvement.
Then we did just a little bit of maths to help you work out the one financial number that will hardly take up any time, but that you can keep any eye on every single day to make sure your business remains profitable.
Remember that by keeping an eye on this one figure can show early signs of something in your business that has stopped working as it normally does. Track this figure and if you see it start to drop . . . answer the 10 questions in the first part of this article to help figure out what might have happened.
Don’t forget to recalculate your daily breakeven number at least once a year. Your bills change, your wholesale prices will change and your wage costs will change. Therefore your daily breakeven number will also change so keep on top of it so you don’t get in to trouble.
Got any questions . . . excellent, send them over to me at firstname.lastname@example.org, I not only love to hear from you, but your questions help me to understand your struggles . . . just what is holding you up right now . . . so hopefully I can help you even more!