It might not be the funnest part of running your business, but creating a solid financial plan for your hair or beauty salon is essential to your success.
Yes, crunching numbers can sometimes seem like a chore! But, as the year 2020 has shown, keeping your salon finances strong and healthy will put you in the best possible position when the unexpected happens.
Have you created a hair salon financial plan? Do you know exactly what your beauty salon expenses are?
If not, we’ve put together a guide with some expert tips on creating a financial plan and budget for your salon.
What is a salon budget and why is it important?
Your hair or beauty salon budget is basically your business’s financial plan. It should forecast for the year ahead, detailing what you expect to spend, how you will spend it and what you expect your income to be.
In your financial plan, you would usually aim to see a growth in your revenue, and get an idea of where you would most like to invest back into your salon. It should also allocate budgets to each area of your business.
A plan and budget is important because it gives you a vital understanding of where your money is coming from and where it is going. It can help you keep focused on what your goals are and gives you a defined plan for how you are going to get there.
How do you create a solid financial plan and budget for your hair or beauty salon?
1. Your salon costs should always be less than your revenue
This sounds obvious. But, sometimes it is easy to get carried away costs, even if you are confident they will bring you further returns on investment.
Make sure you track every expense that goes through your business – wages, supplies, rent, even tea bags! If your costs begin to creep up too much, see where you need to make cuts to stay profitable before they start eating away at your profit.
Start every year with a clear idea of your main expenses such as…
- Staff salaries and related HR costs
- Fixed costs – such as your rent, insurance and other bills
- Variable costs – such as your stock and marketing expenses
Figure out what percentage of your total costs each of these areas takes up. Make sure the revenue your staff produces covers their salary and still leaves you a profit. Always keep your fixed costs as low as possible. Have stock management procedures in place to keep you from over- or under-ordering.
2. Know how much you have to spend
At the end of every financial year, you should know how much profit your salon made.
From this, you should be able to forecast how much money you will make for the next year. Once you have made this forecast, you should know exactly how much money you have to spend each month. Be sure to stick to this budget as closely as possible.
If you are allocating extra funds into certain areas – for example ramped up marketing, a new product line or staff member – make sure you track the return on investment this is bringing you.
3. Understand your salon business inside out
Do you know which of your stylists earns the most money for your business? Or which retail products make the most profit? Which days of the week or time of year do you expect to produce most of your revenue?
These are the kind of insights you should be getting from your salon’s financial plan.
It’s only by knowing what is working to meet your financial goals, and what isn’t working, that allows you to grow your business during the year ahead.
4. Get to grips with your cash flow
Hair and beauty salons are usually subject to seasonal changes. It may be that you expect to see a rush during Christmas, followed by a lull in January.
This of course affects your cash flow. So, while you might have plenty of money coming in during certain periods, this doesn’t mean you should spend it all at once. Plan your finances to always ensure you have enough cash reserved to cover your costs during your quiet periods.
5. Pay your monthly salon expenses regularly
Whenever a bill, invoice or sock order is due, get into a good habit of paying it regularly.
This is why it is so important to plan your cash flow across the year. Make sure you always have enough funds to cover bills at the same time every month. If you put one off until the next month, it will only further your cash salon’s flow problems!
The same applies with your stock. As appointment numbers rise and fall through the year, you can plan for reduced stock requirements during certain months. So again, plan what you need and when you will need it. Do a stock check at the start of every month and buy what you need according to your salon budget.
6. Set targets for growth
As part of your financial planning, you should aim for growth on your previous year.
Setting yourself a goal helps you get motivated to achieve it. So, get to work on thinking up new ways to add more revenue to your salon! Whether you want to try to boost your salon retail, make your salon more ‘Instagrammable’ or host some client events, get creative and try to stretch your business to meet that goal.
Of course, make sure you track any costs these incur and keep an eye on what actually works, too!
7. Revisit your financial plan and budget monthly
Once you have created your salon budget and laid out your financial plan, don’t tuck it away until next year!
The unexpected can always happen – for better or for worse. If you have some unexpected expenses or drop in revenue for reasons beyond your control, factor this in.
If you do find yourself falling behind on your financial plan, try not to let it affect your mindset too much. Look back at your budget and try to use it to your advantage. Find areas you can reduce costs or improve revenue – perhaps by changing your opening hours or increasing your prices if you haven’t done so in a long time.
Do your best to stay proactive. Take a look at our salon marketing advice for some fresh ideas or explore some ways of attracting new clients to your salon. Keep your salon goals in mind, follow your numbers carefully and use your budget to help you get back on track.
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