– Episode 283Antony Whitaker

Episode 283: Transcript

GMSB 283

[00:00:00] 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’s great to have you here with us today. Thank you for all the compliments regarding the podcast. I really do appreciate it. And if you’re one of those people that haven’t yet left us a review for the podcast, then I would love it if you did.

[00:00:20] Antony Whitaker: Ratings and reviews really are extremely helpful. They do matter in the rankings of the show because it helps other people to find the podcast and I also love to hear what’s been helpful. All you have to do to leave us a review is go to the Apple podcast app, search grow my salon business, scroll to the bottom of the page and leave a review and you would make us very happy.

[00:00:43] Antony Whitaker: Now our online money course is currently open for enrollment. So for those of you salon owners who are listening and recognize that money is an essential topic to master, then visit us at growmysalonbusiness.com forward slash course forward slash money to find out more. And I’ll make sure that I put that link in the show notes as well.

[00:01:06] Antony Whitaker: So, with that said, on with today’s show. Now, recently, I got emailed a question from a listener to the podcast asking me about the profit in a salon business. And the question was Why do I say, meaning me, that the business profit and the owner’s wages are two separate things and that the owner of the business should get both the profit and a wage?

[00:01:32] Antony Whitaker: Now, I figure that this is a really good topic because I know it confuses many people. So I’m going to talk about it on today’s episode of the podcast. So as a salon owner, should you be paid a wage and earn a profit from the business as well? Well, the answer in short is yes, of course you should. Now, let me explain why.

[00:01:54] Antony Whitaker: When you started your salon, you invested a certain amount of your hard earned money to get the business open. Maybe you used your savings or perhaps you borrowed money from family or friends. Or maybe you took out bank loans or use credit cards to finance it. Now, in all likelihood, it was probably a combination of all of those things.

[00:02:15] Antony Whitaker: And maybe some things I haven’t even mentioned, but either way, you invested money into a business and you made that investment expecting to make a return on the investment. That’s what profit is a return on the investment. And when you invest in something, that’s the reason why you do it. And if it was your savings that you used to invest in starting your business, then it was previously probably sat in a bank account where it would at least have been generating a small amount in interest.

[00:02:49] Antony Whitaker: And so, when you invest your savings into a business and you don’t make a profit from the business, then you’re effectively in a situation where you’ve just bought yourself a job. It’s just a job that you happen to own. So let me use a simple analogy to explain why the return on investment you hopefully get as a business owner and your wages are actually two totally different things.

[00:03:18] Antony Whitaker: So let me start by asking you a question. Do you invest in the stock market? For example, do you own shares in Apple or Microsoft or Amazon or Tesla? If you do, then congratulations, lucky you. But if you’re like me and you don’t, then let’s just pretend that you do. Today, a single share in Apple stock is worth about US 240.

[00:03:43] Antony Whitaker: So let’s imagine that you invested 240 American dollars and were able to purchase one single share of Apple stock. Which, in effect, means that you now own a very small piece of Apple Corp. Now, I want you to remember the word, invested, because if the share price for Apple was to go up tomorrow from 240 to 250, then you’d be happy, because your investment just increased in value, and you effectively just made a 10 profit on your investment.

[00:04:17] Antony Whitaker: But likewise, if the share price went down tomorrow from 240 to 230, Then you just made a 10 loss on your investment. Okay, so far so good. But now let me ask you this. Regardless of whether the share price went up or down, were you, or are you, employed by Apple? No, you’re not.

[00:04:40] Antony Whitaker: Did you have anything to do with what caused the value of your stock to increase or decrease? No, you just made an investment. And so you are an investor or shareholder who owns a tiny piece of Apple and as the investor or shareholder in the company, when the value of the shares increases, you make a profit on your investment.

[00:05:04] Antony Whitaker: And if the value of the shares decreases, you make a loss on your investment. When you make an investment in Apple shares or any shares, you’re taking a calculated risk on the likelihood that the value of the shares will increase in value and therefore you’ll make a profit if you sold those shares the next day.

[00:05:25] Antony Whitaker: But let me ask you this. If you were an employee at Apple and the share price increased or decreased by 10, would your wages fluctuate accordingly? Now, of course, the answer is no. Why? Because you’re doing a job at Apple and you’re paid for doing your job. Now, this is the important bit. An investor or shareholder in a business and an employee are two separate entities.

[00:05:57] Antony Whitaker: Let me say that again. An investor or shareholder and an employee are two separate entities. You can be just an employee. You can be just an investor. Or you can be both an employee and also an investor. But how you earn money as an investor and how you earn money as the employee are two totally separate things.

[00:06:23] Antony Whitaker: Okay, so now let’s just come back to your salon for a minute. I’ll assume that you are a salon owner, and I’ll assume that you’re the only shareholder or investor in your business. I’ll also assume that you made an investment to get your business started, meaning that you spent a chunk of money into getting that business open and off the ground.

[00:06:46] Antony Whitaker: So how much was it? Was it 50 grand? 100 grand? 200 grand? Or more? Whatever it was, it’s an investment into a business that you work in as an employee and you also happen to own as the investor. And as the investor, if your business loses money, then you lose money. And as the investor, if your business is profitable, then you are able to take some or all of that profit as a dividend.

[00:07:15] Antony Whitaker: And we’ll come back to that later. But regardless. And if you say that the business can’t afford to pay me properly for the work that I do as well as make a profit, then ask yourself this. What would you do? If you bought shares in Apple and the value of the stock you bought never increased in price and so you never got returned a profit on your original investment, what would you do?

[00:07:55] Antony Whitaker: I’ll tell you what you’d do. You’d sell those shares. That’s what you’d do. And then you’d invest that money somewhere else. So here’s the big question. Why are you prepared? To invest in getting your business open if the investment you made in getting your business is never returning you a profit. It, get it.

[00:08:16] Antony Whitaker: Your wages and the business profit are two different things, and as the investor who also works in the business, you should be getting an income for the work you do in the business and the business that you own and invested all that money in should also be generating a profit and be able to pay you a dividend for the investment that you made and the risk that you took in making that investment.

[00:08:43] Antony Whitaker: But, one last thing. Before we finish up, remember that when it comes to profit, that it isn’t all for you. Regardless of the fact that you own the business, and therefore the profit is technically yours, in reality it’s yours to decide where it goes.

[00:09:00] Antony Whitaker: For example, what I mean by that is that profit is used for a mixture of things. First, there is the drawings, meaning any money that you personally take out or draw out of the business during the year to subsidize your wages. Similar to drawings is dividend, meaning the money that you as an investor might get, usually at the end of the financial year, as a lump sum if the business has been profitable.

[00:09:28] Antony Whitaker: But profit is also used for loan repayment. So if you’ve taken out a loan, whether it’s to buy or start a business, that loan repayment is also coming out of the profit. Then the profit is also used to reinvest into business growth, whether that’s for additional staff training or perhaps to enable you to reward those on your team.

[00:09:50] Antony Whitaker: Or it might be used for a sinking fund. Meaning that you probably recognize that every, say, five to seven years, that the salon’s going to need a significant investment. Financial investment into replacing furnishing, chairs, lighting, maybe flooring, etc. And that can add up to tens or thousands or even hundreds of thousands of dollars, in which case you’re either going to have to get a bank loan, or it’s self-financed out of the business profit, which is always the ideal scenario.

[00:10:23] Antony Whitaker: So that’s what is meant by a sinking fund, an account whereby you transfer a percentage of the profit every month or every year or every quarter into a separate account so that when the time comes, the salon refit is self-financed out of the business’s profits. Now before we finish up, the reality is that many salon owners don’t pay themselves properly for the work that they do in the salon as a stylist and as a manager, and the business often doesn’t make a profit either.

[00:10:53] Antony Whitaker: So, if that’s you and you know that there has to be a better way, well, there is. As I said at the beginning of this episode, our online money course is currently open for enrolment. So, for those salon owners who are listening and recognise that money is an essential topic to master, then visit growmysalonbusiness. com

[00:11:11] Antony Whitaker: forward slash courses forward slash money because when you get clarity. And have the confidence that you need to handle the financial side of your business. That will be the best investment that you have ever made. So if you want to find out more, then go to growmysalonbusiness.com forward slash course forward slash money and I’ll also put that link in the show notes for today’s podcast. So with that said, thanks for listening and I’ll see you next week.