Turnover, Profit & Cashflow
Understanding your salon numbers...
Like the saying goes, "Turnover is vanity, profit is sanity, cash flow is king"...
A lot of salon owners (and business owners in general), will talk in terms of turnover. Turnover is what I would call a 'vanity metric', meaning it's something that sounds good but doesn't really say a lot about a business! Cashflow is all about what's left in the business after your outgoings, making it the most important metric of all.
Let's take a look at a couple of examples...
VAT bill: £41,666
Wage bill: £95,000
Gross profit: £34,335
Personal Tax/NI: £7,178
Net profit: £27,157
VAT bill: N/A
Wage bill: £32,500
Gross Profit: £30,500
Personal Tax/NI: £6,065.20
Net profit: £24,434.80
The difference in turnover is a whopping £167,000 - yet the difference in the net profit is only £2,722.20.
So many things can play a factor in all of these figures, the key is to increase your bottom line (profit), by either increasing turnover, reducing your outgoings or a combination of the two.
VAT will also play a big part when it comes to your figures, and the general consensus it so absolutely SMASH through the threshold rather than just hovering above it. You can always try your hardest to stay below the VAT threshold (and that's absolutely fine if that's what you want for your business!) but when it comes to growth, the fact is that it is pretty easy to hit VAT (especially one you employ team members) so you need to make sure you are far and above the threshold so you don't feel the hit when the VAT man comes a-knockin'.
There are loads of outgoings to take into account when running a salon, to name a few:
- Booking system
- Music licences
- Salon repairs/maintenance
- Personal tax
All of this is BEFORE you take a wage! So make sure that when you look at your break-even costs, they are exactly just that. Your doors will remain open but you won't be taking a penny from the business so it's imperative to include this when looking at your numbers.
Then see if you can work on some of the above outgoings to bring them down... and I'm not talking about the tax! But are you shopping around for the best deals on rent, utilities, phone, internet, stock, insurances etc? The pennies will soon make pounds and they will be in your pocket! Or reinvested into the business in the form of training, refurbishments and expansions.
It's good to look at these at least annually (or more often if you can!) to really grow your profits.
If you want to get your prices perfect (and profitable!) check out my pricing calculator.
And don't get disheartened when you hear of another salon turning over mega bucks - it really doesn't say anything about the success of the business!
If anyone has any tips and tricks for squeezing their profit margins, please get in touch or post it in the Boss Your Salon facebook coaching group by clicking HERE!