– Episode 248Antony Whitaker

Episode 248: Transcript

GMSB 248

[00:00:04] Antony Whitaker: Hello and welcome to today’s episode of the Grow My Salon business podcast. I’m your host, Antony Whitaker. And as always, it is great to have you here with us today. So let’s dive straight into today’s episode. Do you remember when you first learnt to ride a bike? I’m sure you do and I’m sure you can also remember the bike wobbling and then you losing your balance and probably falling off once or twice.

[00:00:29] Antony Whitaker: And hopefully you can also remember getting up and doing it again. Until eventually all the pieces of the puzzle came together, from the balance you needed, the coordination, the speed, and the confidence. And now, whether it’s 10 or 20 or 30 or 40 or even 50 years later, regardless of how long it is since you’ve ridden a bike, you can get back on and you’re away just like it was yesterday.

[00:00:54] Antony Whitaker: So, what’s that got to do with your salon and the financial side of running a business? Well absolutely nothing, except that we all learnt to ride a bike by making mistakes. Learning from those mistakes and then taking corrective action until we got it right. When you were learning to ride the bike, maybe there were a few tears.

[00:01:15] Antony Whitaker: Maybe you fell off and grazed your palms or scraped your knees, but you didn’t give up. Instead, you learnt from it until you got it right because making mistakes is all part of the learning process. But in business, when you make a mistake, it’s not just a grazed knee that happens, because the mistakes you make in business have a financial impact.

[00:01:39] Antony Whitaker: So as much as possible, although to some degree mistakes are inevitable, you want to try to avoid making mistakes, and when they do happen, you want to learn from them quickly so that it doesn’t happen again. So, throughout this podcast, I’m going to talk through nine financial management mistakes that many salon owners make every single day, and they pay the price as a result.

[00:02:04] Antony Whitaker: Now, if a little voice has just gone off in your head saying, this might be boring, I don’t need to listen to it, then you are exactly right. The person who needs to listen to it. So with that said, let’s get on with identifying the nine financial mistakes salon owners make and how to avoid them. So in no particular order, the first mistake is having an inadequate pricing strategy.

[00:02:30] Antony Whitaker: Setting your prices based on what your competition are charging or not reviewing your prices at least once a year. Will negatively impact your profit margin. So that’s the problem. And the solution is that you need to have reliable formula so that your pricing is based on having an understanding of what it costs you to run your business, to cover all of your overhead, pay your team properly, and enable the business to make a profit.

[00:02:58] Antony Whitaker: Now having said that, there’s nothing wrong with knowing what your competition is charging. But as long as you understand that that is not how you should set your prices, The second mistake is poor cash flow management. Unfortunately, many salon owners run their business out of their check account, meaning that they have one account, and if there’s money in the account, they spend it.

[00:03:20] Antony Whitaker: But the problem is that if you aren’t monitoring cash flow and planning ahead for fluctuations in income and outgoings, then that will typically result in cash shortages. So the solution is that you need to have a simple rolling cash flow forecast that always allows you to be planning 13 weeks ahead.

[00:03:43] Antony Whitaker: So that you can see the potential problems before they become a problem. And therefore you budget your spending accordingly. The third mistake is underestimating operating costs. Now most salon owners don’t know their break-even point and that’s a problem. Meaning, the amount of money that the business needs to generate every week or month to cover all of its outgoings.

[00:04:08] Antony Whitaker: The problem is that by not knowing your break even point, you will typically be underestimating what it really costs you to run your business. So the solution is that you need a reliable formula so that you can work out what it really costs you each week or month to run your business, cover all of your overhead and to make a profit.

[00:04:29] Antony Whitaker: The fourth mistake is inefficient systems to track and monitor business expenses. The problem is that too many salon owners don’t set up the financial operating systems or have an understanding of how to categorize and record their expenses properly. And not tracking expenses properly leads to poor financial records and missed opportunities for you to make savings, or at the very least, to work within your budgets.

[00:04:57] Antony Whitaker: The solution is that with a little education and some common sense and discipline, you can work with your bookkeeper to help you. to make sure that the way expenses are being recorded and categorized doesn’t just make sense to them, but more importantly, that they’re categorized and organized in such a way that it makes sense to you.

[00:05:19] Antony Whitaker: The fifth mistake is not understanding your profit and loss. If you’re not regularly analyzing the salon’s financial statements to identify any problems or opportunities, then that’s a big mistake. Too many salon owners take the approach of, that’s why I have a bookkeeper and an accountant. But it’s not your bookkeeper or accountant’s job to run your business.

[00:05:42] Antony Whitaker: Their job is to record what’s happened financially in your business in order to make sure that you’re legally compliant, and paying the correct amount of tax,

[00:05:52] Antony Whitaker: And to present a financial summary of your business at the end of the year in the form of a set of financial trading accounts and to submit it to the relevant tax authorities. As a salon owner, it’s your job to understand where the money is coming from and where the money is going so that you can work with your accountant and make intelligent and informed financial decisions about your business.

[00:06:21] Antony Whitaker: And all that information is in the profit and loss and balance sheet. So as a business owner, you need to be able to read and understand it. And the good news is that it’s really not that hard.

[00:06:32] Antony Whitaker: The sixth mistake is poor debt management. Getting into excessive debt through loans or credit cards without a clear repayment plan can result in high interest expenses and financial instability. As a generalization, I’m a great believer in avoiding debt as much as possible. These days it’s too easy to rack up debt on credit cards, et cetera, and that then keeps you trapped in a cycle of high interest rates and repayment plans that suck all the profit out of the business.

[00:07:07] Antony Whitaker: The solution is either to avoid debt or have manageable repayment plans that you can pay down without putting stress on your cash flow. The seventh mistake is lack of a salon budget. I often come across salons that have no budgets in place at all. And so they just work day to day with what’s happening in business and they respond accordingly.

[00:07:29] Antony Whitaker: But it’s important that you think of a budget as being a financial plan. That outlines what income you expect to generate and what outcomes you expect to have and still enable you to make a profit. And if you don’t create and then try to stick to a detailed budget that you work with throughout the year, then it’s very difficult to allocate your financial resources effectively and to plan for future expenses.

[00:07:57] Antony Whitaker: So once again, the solution is that you need to create an annual budget that is aligned with your predictions for both income and expenses throughout the year. Part of having a budget, or any plan, is in recognizing that the year won’t play out exactly as predicted. That’s inevitable. But if you’re not prepared to plan, then you’re really treating your business more like a hobby.

[00:08:24] Antony Whitaker: So you need to spend the time to develop a budget for the year and then to allocate time on a weekly or monthly basis to see how you’re tracking against the budget. And then to make changes as your business inevitably responds to the changing business environment throughout the year and the challenges and opportunities that will come with it.

[00:08:46] Antony Whitaker: There’s a famous quote by Dwight Eisenhower who said, In preparing for battle, I’ve always found that plans are useless, but planning is indispensable. Now, in the context of a budget, I take that to mean that the budget you set out at the beginning of the year might end up being completely wrong. Because what actually happens throughout the year Maybe a totally different thing, but if at least you had a budget to start with, then as the year unfolds, you at least have something that you can reference and adapt to suit whatever the changes are.

[00:09:24] Antony Whitaker: Now that brings us to the eighth mistake that salon owners make when it comes to financial management, and that is ignoring financial key performance indicators. If you’re not watching key financial metrics such as the average bill, the weekly break-even point, or employee cost percentages, then it limits your ability to improve financial performance.

[00:09:49] Antony Whitaker: Monitoring the numbers within your business may not be the most fun and creative thing that you can do, but you can do it. But the numbers tell you how effective you and your team are ignoring or not knowing the financial KPIs in your business would be like driving your car with a blindfold on and so inevitably you will eventually crash.

[00:10:10] Antony Whitaker: So as a business owner. The solution is to develop a dashboard that has the key metrics both for income and outgoings so that at a glance you can see who and what is doing well and where there are opportunities for improvement. The ninth and final point in my list of mistakes that salon owners make when it comes to financial management is over staffing.

[00:10:35] Antony Whitaker: The single biggest overhead in running a salon business is employee cost. And employing too many team members relative to the client demand can result in high labor costs that eat into profitability. The profit margins in running a salon business are often very slim. So making sure that you have the correct balance between staffing levels and productivity levels is often the difference between running at a profit or running at a loss.

[00:11:06] Antony Whitaker: So the solution is that as a salon owner, You need the systems in place to make sure that you are maximizing the productivity of your existing team before you add on any additional team members. So that’s my list of nine money mistakes that salon owners make and what you need to do to avoid them.

[00:11:26] Antony Whitaker: When you grasp the financial fundamentals of your business, it will not only prevent you from making costly mistakes, but it will also open the doors to a more profitable, more efficient, and a more fulfilling business than you ever thought possible. The problem is, where do you start?

[00:11:46] Antony Whitaker: And I get it. You probably weren’t taught how to run the financial side of your business, and that’s not your fault. But it is your fault if you don’t do something about it. Well, the good news is that that’s where I can help you because for a limited time our online money course is now open.

[00:12:05] Antony Whitaker: Now, there is a cost involved in doing this course, but there’s a much bigger cost in continuing to make the same mistakes. This is your opportunity to join us and get a financial education specifically for salon owners. So, visit growmysalonbusiness.com forward slash course forward slash money to find out more.

[00:12:29] Antony Whitaker: Now, I’ll also put that link in the show notes of today’s podcast. That’s growmysalonbusiness.com forward slash course forward slash money to find out more. And if now is the right time for you to join us, then I’ll see you on the inside. Until then, have a great week and that’s bye for now.