– Episode 298Antony Whitaker

Episode 298: Transcript

GMSB 298

[00:00:00] Hello and welcome to 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. This is the weekly podcast for the ambitious stylist and salon owner every week. I’ll either bring a guest on the show or I’ll dive into a new idea or revisit the foundations of what it takes to succeed in the salon industry today.

[00:00:32] So whether you’re a stylist, a salon owner, or a manager, I’m glad that you’re here because today’s topic is one that every business owner will face at some point, and that is how do you manage a cash flow crisis? What do you do when the outgoings exceed the incoming? And more importantly, what shouldn’t you do?

[00:00:55] So recently a salon owner who’s doing my online money course reached out to me with a challenge that she was facing, and she was generous enough to allow me to share our exchange on the podcast because in her words, this is something a lot of people go through. And if it helps someone else, I’m happy to share it.

[00:01:14] So I’m gonna begin by talking about the challenge that she had. I. Now at the beginning of the year, the salon owner had seven staff. One happened to have resigned in February and then came the bombshell. Her top performing stylist had suffered a significant sporting injury and she’d be off work for at least three months.

[00:01:34] Now, on top of that, three of her other stylists already had annual leave booked, one in May, one in June, one in July, each taking three weeks off. That then left her with just two stylists and one junior trainee on the floor during what was shaping up to be a very lean few months. But she’s been clever enough to look into the future.

[00:01:58] She could already see the impact on sales volume that this was gonna have, and she’d run the numbers and she could see a shortfall ahead. She had a cashflow forecast that she’s been using that we provide in our online money course that shows you 13 weeks ahead how you are tracking. Are you in the black, which equals good, or are you in the red, which equals bad.

[00:02:21] And she can see that she needs to be proactive and head it off. Now, as she put it, I’m afraid to be falling into the red. Now, her idea was, should I give the business a personal loan from my savings to stop it going into the red until everyone is back on the floor and the salon revenue stabilizers. Now she recognized that she couldn’t cut the fixed costs of the business.

[00:02:46] So the things like, you know, the rent, for example, which is fixed no matter what revenue she’s bringing in. The only thing that she had control over realistically was the stock that she bought and how productive her team was. Now obviously there are some other things, but they were the two big nuggets that she thought, I’ve got control over stock.

[00:03:09] I’ve got control over the productivity, of my team. Now, to her credit, she had already been putting money aside weekly for things like annual leave and sick pay and holiday pay, et cetera, even if it wasn’t the full amount, she did have most of it. but she had no leave planned for herself and she was worried about what was coming,

[00:03:31] So what did I do? Well, first of all, I congratulated her because even though it was a tough situation she was in, she’d done something that many salon owners don’t do. She saw the problem coming.

[00:03:43] That’s the benefit of the rolling 13 week cash flow forecast. Because if you are updating your forecast weekly, you can see problems before they become emergencies. And that’s exactly what she did, and that’s why I congratulated her because a lot of people just put their head in the sand and hope the problem sorts itself out all by itself.

[00:04:06] But that’s not gonna happen. So let’s get back to her question about a personal loan

[00:04:11] Yes. Dipping into your savings is an option. But it should be your very last resort, not your first move. And that’s where having retained earnings or an emergency fund inside the business becomes critical. And as I said to her, imagine how good it would feel if you already had, say, $60,000 set aside in a separate account.

[00:04:35] Just for this sort of thing because well, stuff like this happens. It’s not if it happens, but when it happens. So my advice was this exhaust every other possibility first, and here’s the list that I gave her, starting with ways to increase her income. So the first thing I said was, have you had a price rise recently?

[00:04:57] Now she had, so we took that off the table. The second point on my list was, could you shorten the appointment durations? Because even a 15 minute reduction per client then increases the daily capacity. Third one on my list was, can the team spread out their annual leave more evenly? Because as I said to you, she had three people that already had annual leave booked in of three weeks a piece.

[00:05:24] But even by shifting a week or two can certainly soften the load for the business so that she doesn’t have to go into the red.

[00:05:33] The next point I said was, can you bring in a stylist on a short term basis? For example, even potentially a travelling hairdresser or someone returning from maternity leave might jump at three months.

[00:05:44] Part-time work. The next point on my list was, what about a stylist for just two or three days a week, maybe five hours a day? You see, you never know who’s out there. It could be a young mom whose child just started school, for example, and she might welcome the opportunity of doing a shift in the middle of the day.

[00:06:04] Next on my list was, can you or your team extend your working hours temporarily? Do an extra few late nights or extra Saturdays, because that could help meet the demand. Because what you don’t want to be doing is losing clients because they can’t be seen and so they go elsewhere.

[00:06:22] Next on my list was, do you have any unused space within the salon that you could potentially rent out? So for example, perhaps a treatment room or perhaps an area of the salon that just isn’t used at the moment. Or could you sell something business-wise, anything that’s no longer being used, whether it’s furniture or equipment of any sort.

[00:06:43] And the longer it just sits there in some storage area not being used, the more it depreciates in value. So is there anything you can clear out and turn into cash. Next on my list was the same thing at a personal level. Is there anything personally that perhaps you are not using, whether it’s, a second car or even a wardrobe full of clothes or some jewelry that you never actually wear, what can you turn into cash so that you do not have to dig into your personal, uh, savings?

[00:07:15] So the point is here that you’ve gotta get creative. You’ve gotta look at all the options that are possibly on the table to increase your income, to increase the amount of money that the business is generating, or to turn stuff into money that is no longer needed. Once you’ve done that, then obviously the second point is to come at it from the other angle, which is, how can you reduce your outgoings?

[00:07:40] So again, I put together a little list of bullet points that I, suggested to her. The first one was, you need to cut all the nice to haves. So only spend money on things that directly impact the client experience. If it’s not gonna impact the client experience directly, then consider reducing it or cutting it out completely.

[00:07:59] Next on my list was tighten up on inventory. So only order what you need and order in smaller amounts and do more frequent orders if that is a more cost-effective way of doing it. Next on my list was to reduce hours or pause any contracts for anyone who isn’t essential. Oftentimes, there’ll be situations where perhaps it’s a, extra receptionist or maybe there’s some assistants or stylists that are not productive. So if you are legally in a position where you are able to reduce people’s hours or pause their contracts, et cetera, then I would recommend doing that.

[00:08:37] Next was to renegotiate any loan or credit card repayment. So if you can reduce the amount that you’re meant to pay just temporarily for a period of time, that might help your cash flow. So renegotiate any loan or credit card repayments and pay the minimum amount that you can for now.

[00:08:55] The next point was to cancel any unused subscriptions, whether that’s at a personal level, things like Netflix and gym memberships, et cetera, or perhaps within the Salon IT system, you might have different subscriptions. I know that we have a lot of subscriptions that we use for different apps that maybe aren’t being used anymore, maybe have been replaced, and you are still paying for them month by month.

[00:09:21] Next was to look at your personal spending. Can you pause or reduce the amount that you are spending personally, on things such as eating out or just excessive shopping or, maybe buying, gifts that aren’t necessary. So, I know some of this might sound a little bit brutal, but when you are looking at a business situation where.

[00:09:41] You are going into the red and you know that you’re gonna be losing money. You need to be doing whatever you can to, make sure that that isn’t happening. Now, the last point I suggested to her was that she had said to me that she was looking at hiring another assistant because that assistant could potentially do some of the duties, like, cleaning and making clients coffee and seating clients and shampooing clients, et cetera, which would then free up the stylist to do more revenue producing tasks.

[00:10:12] And on one hand, that makes a lot of sense, but on the other hand, as I said to her. Only hire that person if it will either be a situation of where they’re able to cover their own wage by doing those services that other people can’t do. Or if it frees up other team members to be more productive so that they’re not having to shampoo or clean or sweep or make coffee because they’ve got an assistant to do that sort of stuff.

[00:10:37] So after I replied with that email listing all the things that she could possibly do to increase income and all the things that she could possibly do to reduce the, uh, outgoings, she got back to me with a response. And this is what she said to me. She said, Antony, I have already had an emergency fund in place that has got about $20,000 on it, but I know that I’m gonna need more.

[00:11:03] She wasn’t quite sure how much more she needed, so, full marks for her to already have established some sort of emergency fund, even though it wasn’t going to be enough. Because most people, let’s face it, don’t have any sort of fallback position. They don’t have an emergency fund. The next thing she said to me was in line with that she was going to work out exactly how much she was anticipating that she would need to avoid going into the red.

[00:11:30] And I think that’s important because when you have an exact number, it starts to take the fear away and you start to look at, okay, so. That’s the gap I’ve got to close. Is it 20,000, 30,000, 40,000, whatever it is. And then bit by bit, you’ve got a really clear goal about what you need to chip away at. Then after that she said to me she had had a price rise recently, and so therefore she wasn’t, going to put another price rise in place, which could have helped reduce, the amount that she’d be going into the red.

[00:12:03] So that was taken off the table. She did say to me that she had scheduled a call already with a part-time stylist, and it was exactly what I’d said. It was someone with small children who was looking for a three month casual employment role, during the middle of the day because she had young children that were at school.

[00:12:22] So it’s just a great example of once you put things out to the universe, you never know who is out there. And oftentimes people will look at these suggestions and say, oh, I don’t think that’s gonna work. But you know, like I say, it’s not until you put it out there into the universe, and I hate to be all woo woo about it, but it’s interesting how often something comes out of doing that.

[00:12:44] but you can be guaranteed that if you don’t put it out there, then nothing is going to change. Okay, so next thing was she had lined up an interview with a first year student to work evenings and Saturdays to do exactly that role we spoke about, which was to make coffee to seat

[00:13:03] Clients to, keep the salon clean, which enabled the stylist to focus on being more productive and she’d calculated that the amount of extra revenue that the stylist would be able to bring in would more than compensate what she was gonna have to pay that first year student. And she’d had a call scheduled with a makeup artist who was gonna hire out part of her makeup bar, and that would also then produce some additional revenue for the salon.

[00:13:32] So this was looking better. as we went through this list, the next thing she said was that her beauty room. Was already rented to a cosmetic nurse, so she couldn’t rent that out to someone else. But she did have an old or unused LED machine, and she could sell that if needed. So she was looking into that and she’d planned a stock take so that she could look at her inventory control and tighten up on that, reduce the amount that she was ordering as necessary.

[00:14:03] And she said to me that her credit cards and loans were under control. So that was a good thing because in a lot of cases, they’re not under control. So it wasn’t a case of her having to go on, you know, a minimum payment plan so that she wasn’t, tying up all her cash flow because that hadn’t been a problem.

[00:14:19] And luckily, she also acknowledged that her personal spending was lean already, And best of all, she was taking the weekend to make a proper plan and she was gonna share it with her team on the Tuesday. So she was being proactive. She hadn’t panicked.

[00:14:37] And again, I think that’s a really important thing to take on board.

[00:14:41] So before we wrap up, I just want to pull out of this little exchange 10 really important lessons that I think are relevant to everybody that’s in some sort of cash flow crisis. So the first one is anticipation, meaning expect stuff to happen. So in this particular case. It happened to be a sporting injury in someone else’s instance, it might be a car crash, it might be a divorce.

[00:15:06] It might be floods. It could be fires. It could be a staff walkout or pandemics or whatever it is, because after all, this is a business and stuff happens. So anticipate that stuff is going to happen and in line with that. Number two is build an emergency fund. We’ve all been told it. More than once. Covid really highlighted it for a lot of people, uh, that you need to have an emergency fund with a minimum of three months and ideally six months worth of revenue that you can fall back on in the event of an emergency because emergencies happen.

[00:15:41] Number three was use a cash flow forecast. So I can’t recommend enough. That’s why it’s part of our money course program that we have where we have a 13 week rolling cash flow forecast. So. The template enables you to plug in your numbers every week, what you anticipate for income and what you anticipate in outgoings.

[00:16:02] And you are always looking at 13 weeks ahead so you can see problems before they become a problem. So that was number three. Use a cashflow forecast. Number four is be proactive. Do not bury your head in the sand and just hope that this sorts itself out because it won’t, it will usually get worse.

[00:16:22] Number five. Is ask for help. So whether it’s asking me for help or asking an accountant for help or your business consultant or business coach, whoever it is, a problem shared, as they say, is a problem halved. So don’t be afraid to ask for help. Get someone’s input and ideas, someone else’s perspective on what the problem is, and brainstorm with them so that you can possibly come up with ideas and solutions that you maybe hadn’t thought of.

[00:16:49] Number six was cut every expense that you can and be ruthless about that. Number seven is to maximise the income that you already have. Look for ways to rarely capitalise or maximise income. Number eight is the importance of knowing your numbers.

[00:17:10] So know your numbers. They’re facts, they’re not feelings. And having those facts puts you more in control, and it takes the fear element out of the mix. Number nine. Is talk to your team. I think that’s a really important thing that she said. She was taking the weekend out to put a plan together, and on Tuesday she was gonna sit the team down and talk them through it.

[00:17:32] Open honest communication without hysteria is a really important part of this process. And finally, number 10. Is, make a plan and stick to it and adjust it as things change because things will change, but you’re still better to have a plan so that you can see what part of the plan needs to change over the coming weeks.

[00:17:54] So before we wrap up, I just wanna ask you that same question. What would you have done in this situation? Hopefully now you’ve got a better idea of how to approach it strategically, calmly and proactively.

[00:18:03] Hopefully now you’ve got more options than you think. You just needed to look for them. And if you haven’t already checked out my free one hour masterclass called: How to Navigate a Path Through Difficult Financial Times, you’ll find it in the free resources section on our website.

[00:18:24] www.GrowMySalonBusiness.com/free-resources. And of course, if you want to go deeper, our money course opens again on June 16th. Just visit www.growmysalonbusiness.com/course/money to join the waitlist and get notified when it goes live.

[00:18:43] So thanks for listening, and until next time, take care and have a good week!