Going into business for yourself is one of the hardest yet most rewarding things. If you are a small business owner you know exactly what I mean.
There are really high highs — and really low lows. I’ve often heard the statement, “Being an entrepreneur and a business owner is like riding a roller coaster,” and I couldn’t agree more. And when we talk about a service-based business, it’s even more intense.
You go into business with the intention of caring for others. You put your heart and soul into it. Effectively, you are serving others non-stop. But you also want to make a profit, right? I have yet to hear someone say they went into business feeling like they would be OK without making a profit.
Did you know that the average profit margin for a commission salon owner is around 8%? Yes, this is true. But the keyword there is “average”. I can also tell you that many salon owners in this industry are making less than a 5% profit. And some salon owners are making little-to-no profits at all.
This is truly heartbreaking to me because I know first-hand the hard work, time, dedication, money, and energy that goes into being a salon owner. I understand this because the first five years in business I STRUGGLED! I made a lot of mistakes and don’t want you to do the same. With that in mind, here are some lessons I learned about profit margins — often the hard way.
You Need a Business Plan — In Ink — That Relies on Your Work Alone
Thinking of opening a salon or a service based business? Start working on your business plan ASAP. This is not an option. If you don’t feel ready to create a full business plan, you don’t have a full picture of your finances or goals. Period.
Also, you should be able to run your business on your revenue only. Don’t start out relying on other stylists to offset your expenses. I feel it is incredibly smart to be able to have your stylist or service provider be a bonus to your business when it comes to revenue. You shouldn’t have to rely on their income just to stay in business.
Know Your Business Numbers Like You Know Your SSN
You should know your revenue and expenses like the back of your hand. Keeping track of your monthly breakdowns and understanding what is coming in and going out down to the penny is crucial. I recommend staying on top of your profit and loss sheet by tackling it at least once a month. This way, you have a handle on what is coming in and what is going out.
Know Your Break-Even Number
This is the number you would need to bring in just to cover your expenses, and it’s actually easy to calculate. Simply add up all of your expenses for the entire month — this extends from payroll to paper towels to credit card fees — and you’ve got it. This number will tell you what you have to bring in just to open the doors to your business every month.
Have a Professional Accountant and/or Bookkeeper in Your Back Pocket
An accountant is your number one. If you like numbers and want to track your profit and loss each month, knock yourself out. But I’m telling you, having a bookkeeper changed my life as an owner.
Stick to Your Monthly Budget
Understanding your monthly percentages for rent, supplies, payroll are key. Staying within them is even more important. AKA..Don’t overspend on stuff you don’t need. Sticking to a budget may also mean that you have to cut back a bit. The P and L will help you with that too. If you have a target supply budget and you see you keeping going over that budget every month, you can easily start to look at how you can cut back. What is it that is causing you to go over budget? Do you have an ordering system in place? Just a few things that will help you along the way.