Expert advice: top financial advice for salon owners
Published
09th Aug 2011
by rachael
Having qualified as a chartered account in 1996, Paul's experience includes working in both small practices and large corporate firms, leading to appointments as financial controller and company secretary of Racoon International in 2010, to his present position as general manager.
Here he offers his advice for salon owners.
HJ: How would you advise salon owners remain prosperous during tough economic times?
PD: When times are tough, I always advise people concentrate on the three C's - Customers, Costs and Cash. During dire economic times, people often fall into the trap of expanding their offering or diversifying to spread their risk. But this overlooks their most important source of income - existing customers. Focusing on existing customers can bring in the highest returns per pound spent.
Next, carefully review your costs; can they all be justified? Where resources are limited, it is extremely useful to prioritise your costs in order of importance, so when cost cutting is required, the reductions are initially made in areas that are the least painful.
Try not to compromise key areas such as training and marketing; they are essential to survival.
HJ: Are there common areas where salon owners fail?
PD: Hairdressing salons are usually cash-rich businesses because customers pay at point of sale. Therefore, it is easy to get sidetracked by turnover and not pay enough attention to margins; a busy salon is not necessarily a profitable one. It is important to determine how much margin you make in all areas of your business, whether it is retailing wet-line products or a simple cut and blow-dry.
Another common weakness is cost control in regard to staff training. The hairdressing industry has a high level of labour mobility. So many salon owners invest time, resources and money in training, only to see an individual jump ship to another job as soon as their training is finished. So, it is important when investing in training to get staff to sign some form of contract. For example, if they leave within 12 months of completing their training, the costs are repayable.
HJ: What systems should a salon owner have in place to keep a track of finances?
PD: The key for any business is to plan in advance. Record all fixed costs - such as rent, rates, heat, light - on a spreadsheet for a 12 month period. Then calculate how many products and services (accounting for the margin only) you need to sell to cover your costs. This means you can then set yourself monthly, weekly or even daily targets to ensure you are on-track. It is unforgivable to wait until the end of the year to see if you have made a profit.
HJ: Is it an advantage for a salon manager to have hairdressing experience?
PD: In the majority of salons, the owner does have hairdressing experience and as well as doing clients, acts as business manager and salon manager too. There is a danger here of spreading themselves too thinly, being responsible for many jobs, but not doing any to the best of their ability. So, whether a salon owner does or doesn't have hairdressing experience, they need to employ a good manager to take care of the salon side of the business, thereby forming balanced responsibilities.