Business Financial Health, Part 2

This is the second post of a 4 part series on InSPAration Management’s blog to learn strategies on gaining financial health. In the last post, we discussed having a spa budget and knowing the breakdown of where all of your money is being distributed. Included was a financial assessment useful in determining your financial status and where you needed improvements. After understanding this portion, focus on step 2 to get closer to financial health. spa finance 2.            Your P & L Statement The Profit and Loss Statement is your monthly report card.  This allows you to see your financial ratios and ensure they are aligned. There are 4 important financial ratios to measure: a.            Operating Expenses b.            Product Cost c.            Compensation Cost d.            Profits Operating spa expenses and compensation are the biggest two expenses for a business.  In most cases, we find that the compensation ratio is too high. To be profitable, your compensation ratio cannot exceed 40% of your overall budget.  For example, for each dollar that comes into your business, you can afford to pay $.40 towards compensation. If your compensation cost is more than that, then you are at risk of having an unhealthy business. If your spa compensation costs are high and your profits are low, check out the InSPAration Management VPG ComPlan Overview below to address these challenges and restructure a model that will help regain your financial foundation! spa budget, spa finance, spa   Still having financial issues at your spa? Please leave a comment or question below so we can help you!
When business owners first go into business they are excited, eager, motivated and can’t wait to get started.  Then reality sits in and the bills start piling up, followed by pressure, tension anxiety.  If you are like most owners you are always looking for ways to cut expenses and generate more revenue so it’s worth it to be in business. The main reason entrepreneurs go into business for themselves is to be their own boss, have more freedom, and make more money. But here is the sad fact: in most cases business owners don’t pay themselves, they end up working harder and make less money.  According to US census statistic an average business makes about 7% net profit.   Yes there are some businesses that make more, some less, and some make none.  Where do you stand? Are your overhead expenses diminishing your bottom line?  If so, read the first of this 4 part series to learn strategies on gaining financial health. spa profits 1.     Have a Budget Most spa and salon owners who call our office seeking business help don’t have a budget.  Without a spa budget, you are allowing your business to manage you instead of you managing it. Whether you have a large, medium, small spa or are even a solo-preneur, you must have a budget.  Your budget should include a monthly breakdown of all your finances, such as:
  • Number of spa clients you expect to see monthly
  • Forecasted service revenue
  • Forecasted retail revenue
  • Spa product cost
  • Compensation cost
  • Spa Operating cost
  • Spa Marketing expenses
  • Budgeted profit
The key is to detail the budget as much as possible so your revenue goals are clear and to be disciplined enough to not over spend. Want to see how healthy your business is? Take a financial assessment to see where your business stands.
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