Is your "budget" breaking the bank?

How to Understand Your Salon Finances

A Practical Guide

Do you find yourself wondering where your money goes each month? Are you unsure about your spending benchmarks and lack a clear monthly budget? If so, you might be overspending on supplies without even realizing it. In this guide, we'll break down two crucial areas of your salon finances and introduce two key calculations to help you gain control.

Diving into your financial numbers can be intimidating, especially if you're new to the process. However, understanding and managing your finances is essential for a thriving salon business. Let's tackle two specific areas and provide calculations to kickstart your financial management journey.

1. Monthly RENT Budget

As a suite owner or renter, it's crucial to establish a target rent that aligns with your total revenue. Your goal is to keep your monthly rent at 12% of your total revenue. For instance, if your rent is $1200, your target revenue should be $10,000 to maintain a 12% rent ratio.

To assess your current rent percentage, divide your rent by your monthly revenue. If, for example, you bring in $8,000 monthly with a $2,000 rent, your rent percentage is 25%. Exceeding the 12% benchmark impacts your profit, as rent is a fixed expense. Consider exploring ways to increase your revenue to maintain a healthy profit margin.

For commission salon owners, the benchmark for rent is 8% or less, aiming for a 20% profit.

2. Back Bar Supplies Budget

Managing back bar supplies is crucial for controlling expenses. The budget and benchmark for suite owners and renters for back bar supplies are set at 15%, excluding retail. Calculate your percentage by dividing the back bar supplies cost by your total monthly revenue. For example, spending $1000 on supplies with a $6000 revenue results in a 16.6% expense. Keep in mind that the budget is 15% or less, and reducing expenses directly impacts your profit.

Commission salon owners should aim for a 6% benchmark in this area due to the additional expense of payroll.

3. Target Profit

Understanding your target profit is fundamental for financial success. For suite owners and renters, aim for at least a 50% profit, while commission owners should target at least 20%. While generating revenue is crucial, what happens between expenses and spending is paramount. Maintaining a clear budget and benchmarks each month helps keep your business on track.

Running these calculations and regularly checking your profit and loss statement empowers you to make informed decisions and adjust your strategy to improve your business's financial health. The more you know about your business and stay attuned to your target percentages, the more confident you'll become in growing your salon.

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