You’ve heard me say several times how important having a budget is. If you don’t have one by now, I don’t know what else I can say or do to convince you to obtain one. Maybe the fear of financial ruin will get your attention?!
How much profit did you earn last year? Did you accomplish your goals? If yes, congratulations to you! If not, why not?
Lately, I have been receiving some scary phone calls from spa owners seeking help. These calls represent all shapes and sizes of the spa industry, from large multi-million dollar businesses to solopreneurs, and the topic of the conversations is, “I am not making any PROFITS,” or “I am not making enough profit,” “I am working so hard and at the end of the year I have nothing to show for it.” And in some cases they are in the RED big time. I like the color red, but on the financial statement, I much prefer black; don’t you?
There is a saying in business, “Cash is King!” Although, when you don’t have cash at the end of the month, it’s an indication of three factors:
1. Your financial ratios are out of whack
2. You are spending beyond your means
3. You’re not generating revenue due to lack of marketing
You’ve heard me talk about financial ratios before. As a matter of fact, we have a couple of free webinars on www.InSPArationManagement.com that you can view to help you further understand your finances.
You must conduct a financial ratio analysis for your business. There are three financial terms you need to be very familiar with:
- Liquidity: Your ability to pay short-term debts and obligations on time.
- Debt: Amount of money needed to run your day to day business
- Profitability: The amount of money you take to the bank after paying all your expenses
The one mistake I see over and over that affects your profit line is the compensation model and payroll cost. Many spa owners are not making any profits due to lack of tying compensation to performance. If you want to pay someone the outrageous rates you are paying, then you need to at least have them earn it.
You will not make any profits if your operating cost and your payroll cost are too high. Owners are hesitant to change their compensation model, due to the fear that their team might leave. I totally understand that, but what is the alternative?
• Working for free
• Going out business
• Not sleeping at night
• Getting sick because of stress?
Or you can keep the same team and regret being in business and/or lose your passion for why you started your business in the first place. The choice is yours. Something has to change. Go on a recruiting mission. There are many people who are looking for jobs. I know it’s difficult to make changes, but if you don’t make the change, you will keep getting the same results and stay broke.
However, here is the brightest idea! If you have an effective marketing plan and you are keeping your team busy, they will make money without you paying outrageous commissions.
You see, 50% of nothing is nothing. For example, Massage Envy is the fastest growing franchise and they only pay their team $15 per hour when they are working, plus tips, in most cases. They employ thousands of massage therapists and estheticians, and everyone is making money. Why? Because they are busy! So you see, it’s not about the commission rate, it’s about how busy they are and how much money they can earn!
The bright idea here is to assess your compensation model as soon as possible and make necessary adjustments, so you can achieve a healthy business!
Determine your budget and develop a healthy business!
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