Aside from the obvious salon expenses, like equipment and rent, salon owners and managers need to think of the typical expenses in day-to-day operations. Do not worry- this isn't as tough as it sounds.
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- What is Salon Overhead?
- What Are Some Salon Expenses?
- Salon Expenses vs Income
- How to Reduce Your Salon Overhead Costs?
- Salon Expense Sheet Template
What is Salon Overhead?
The term "Salon Overhead" covers numerous expenses and generally includes things like your salon equipment, salon product stock, and the supplies that your stylists use- including hair colour or styling products. It also covers your financial expenses, such as staff payroll, any taxes that you pay, upkeep, and business insurance for your salon. These are all things that you'll require to comprehend and keep track of to stay in control of your overhead costs.
Now, let's have a look at all of these items in a little bit more detail.
What Are Some Salon Expenses?
Salon expenses can be divided into 2 classifications: Recurring Expenses and Occasional Expenses. While it's important to keep an eye on a salon's occasional expenses, it's not always possible to predict what precisely these fees will be or how they will impact your revenue margins. Recurring expenses, however, can and ought to be accounted for. They're the average costs that have to be paid each month, so you'll have a good idea of how each recurring expense will affect your revenue earnings and bottom line.
Let's begin with a breakdown of recurring expenses. Recurring expenses are the costs that you can expect to pay regularly, typically monthly. These costs are much easier to budget for, especially if you utilize salon software to track all your business expenses in one place.
Some Salon Monthly Recurring Expenses Are:
Staff Salaries and Wages
People frequently ask, "What is the largest expense in operating a salon?" The answer is generally wages. The average stylist in Canada makes more than $32,000 a year. This can rapidly accumulate if you have a great deal of staff. Keep track of your payroll costs.
Payroll (social) Taxes
These prices will vary, depending upon your business location. Make sure to research what's needed in your location and set aside some cash to cover these costs.
If you're still picking a salon business location, check out the typical rent rates in your area online. These will depend a lot on location. Businesses normally pay higher rent than private homes, so it's important to remain informed and have a dollar amount in mind when planning your salon's budget. If you can save money on rent, this will add a lot more cash to your total revenue by minimizing the overhead expense.
Licenses and Permissions
Your business may need licences and permits from the federal, provincial and municipal levels of government. You will probably need health and safety inspections and certificates. If you plan to sell cosmetics and personal care products related to your salon you may have to go through some extra steps to obtain authorization. Check your province’s website and the website for your city to see what's required.
More than likely, you'll eventually want to invest in some additional education, training, or professional advancement for each stylist at your business. Salons often seek new training to stay up to date with the current hair trends or techniques. The hair industry is constantly changing, and this means that businesses need to keep up. Education is important here. A new training course or license won't be totally free. Still, if salon owners work with each employee and pick carefully, the long-lasting benefit from education investments will add a lot to your income and raise your salon's monthly earnings. Plus, it's an excellent way to build team members’ loyalty.
Salon Software and POS System
These systems differ in price, depending upon your salon's requirements. Pick exactly what metrics you want to track (for instance, do you wish to know when you should reorder your product stock, what visits are coming up, or how much revenue each stylist has generated up until now)? You can choose something that fits your requirements when you know this. A POS system is needed for processing transactions, but remember that it might also require specific equipment (such as iPads, if it uses wifi) and receipt paper.
No matter what services they provide or what industry they're in, businesses all need to take care of utilities. Salons all require water, electricity, and heat, obviously. It's a proper idea to look up the typical costs for these services in your area. To give you a thought, the typical electrical power bill for a salon begins at around $150 each month, and water bills can cost from $45 to over $150 for the largest and busiest salons.
In addition to other utilities, you'll need to think about the internet service and a phone line. A stable internet connection is crucial for processing payments, maintaining your salon's social media visibility, and doing any online marketing.
Back Bar Supplies
When you begin your salon business, you ought to have adequate supplies and basic tools prepared for each staff member to use. Don’t forget to include these business costs in your regular monthly expense budget. A salon's back bar supplies usually include shampoos, sanitizers, conditioners, styling products, and any chemicals utilized during services (such as perm solution and hair colour). If you also run a nail salon, you'll want to budget for the cost of specialized polishes and manicure items, too.
Salon Product Inventory
This is not the stock that your stylists utilize on clients. It's your supply of retail items. A large part of a salon's earnings results from product sales, so it's important to have sufficient inventory ready for your team members to make add-on sales and recommendations.
Salon Equipment Leasing
Nowadays, leasing is one of the most popular methods to purchase equipment. Instead of paying in full or putting it on credit, you'll set up a specified month-to-month payment toward the price of your equipment. At the end of the leasing duration, your business will normally have the opportunity to pay off the closing amount and own the equipment outright or extend your lease with the most recent equipment. In this manner, you can reduce any upkeep worries and keep your salon at the cutting edge of the hair cutting industry.
Online and Credit Card Processing Charges (Fees)
Credit card processing charges can differ a bit, depending on your supplier. The typical charge that you'll encounter is around 1.5% to 2.7%. However, be careful. Some providers will charge as much as 3% or more. As a salon owner or manager, make sure to do your research. These seemingly minor differences can quickly consume your earnings.
Salon month-to-month expenses for marketing differ largely, depending upon your business strategy and the tools you use. An email marketing campaign or a salon newsletter can be reasonably affordable, particularly if you have a staff member who can assist with this. The cost of placing an ad online or in print, especially if you employ a professional to do it, can be quite costly.
Business insurance coverage will not be your most substantial overhead expense, but it's an important one. Insurance coverage isn't simply a smart thought. It's a legal requirement. As a salon owner, anticipate paying anywhere from $400 to $900 a month for business insurance costs, depending on your salon services and area. There's also the possibility that companies will suggest additional business services, such as health insurance for your employees. Not all salons select to provide this, but it might be something to consider if you wish to draw in and retain accomplished staff. The dollar cost of insurance coverage will differ a lot, depending on the area of your business. Do your research and see which companies fill your requirements, and make certain to compare quotes.
Your Occasional (one-off) Salon Costs Will Be:
Salon Opening Costs
Salon start-up expenses will include hiring stylists and staff, retrofitting and cleaning your brand-new venue, and advertising expenses for your brand-new business.
New Equipment Purchases
You'll need to buy it if you choose not to lease equipment. And the costs will depend a lot on the kind of salon business. Is it solely a hair salon? Does your business provide customers with nail care services or other specialized beauty services, such as waxing or tanning? These are all related expenses that can contribute to your basic equipment cost. You can anticipate investing someplace in the range of at least $27,000 if you need to buy your basic equipment. That includes everything from chairs, shampoo stations, hood dryers, and hairstyling/ cutting tools. You can always start small, adding more equipment as you need it.
A properly designed salon with decor that stands out is crucial to be competitive and generate more earnings. For example, a salon is more likely to succeed if it feels open and welcoming, not cluttered or dated. When opening a new salon, it's crucial to budget for this. And think about setting aside a portion of your profits each month towards future enhancements or updates.
This is a big one. Not big in regards to expense; it's simply extremely important. It is a perfect time to get creative and shop around. Effective signage can be remarkably inexpensive if you shop around thoroughly. That stated, a professionally made sign can also cost several hundred dollars, depending on your requirements.
Having an online exposure is crucial to success as a salon nowadays. Consider investing a little money (or time, at least) in a salon website. It does not have to be expensive, although you can employ a professional web designer if you wish to make money from that "wow factor." It's also okay to start with something less complex, like an online layout.
These are everything from the money float in the till to any dollar amount you require to spend on random emergency situations. It's a smart idea to have at least $500 put aside to pay for unanticipated things.
Salon Expenses vs Income
To better comprehend the importance of tight salon expenses management, let's look at some salon industry stats. Based on the salon industry research done by salon coach Derek Hull from Salon Ops when we compare:
- salon income - money generated from sales - vs.
- salon expenses - money spent in order to generate the sales
The reality can be tough:
- 90% of salons where the owner is also working behind the chair operate on a 5% loss. It basically means that the owner funds the loss from their incomes.
- Just 10% of salons where the owner is also working behind the chair generate a 6.5% revenue on average. It does not sound too thrilling, does it? Continue reading and learn how to cut down your salon costs.
How to Reduce Your Salon Overhead Costs?
Understand What Exactly Drives Your Overhead
Have routine meetings and talk with your personnel. Make certain that they feel comfortable complaining to you about anything related to the salon that they think is bothersome or inefficient. Given that they're on the front lines, your team members will often notice unproductive expenses first. Show that you're on their side, value their input, and after that establish a strategy to tackle the most substantial expenses first. You'll be shocked by how much time and money you'll save. You'll also have more satisfied staff and happier clients.
Use Salon Management Software and POS System
Effective Salon Software and a POS system will save you time and money due to the fact that it will track and record transactions as they take place. That is especially useful for processing online transactions and credit card payments for your salon. Speaking from experience, the benefits of salon software far outweigh the costs because of the time you'll save. This is very important for your business success and your mental health. You can set schedules, track bookings, examine your stock of goods, and see which stylists are hitting their targets, all in one place. It will cut way down on the stress of everyday business operations and really help free you up to focus more on your clients.
Unsold or expired products won't make you revenue. It's crucial to have enough stock for sales and salon needs. On the other hand, products take up space. Excessive clutter can look unprofessional and compromise salon safety. You need to look for the right balance. Ensure to track this stock and fill it up only when needed to prevent taking up space (which can fill up rapidly in a busy salon) or creating waste. Wasted items or surplus stock can eat into your profit margins. Think about investing in some salon software to track fast-moving products and assist with managing your orders. You can even set up smart ordering when the stock reaches minimum levels. It will maximize your revenue/ expense ratio and eliminate needless waste.
You can utilize scheduling software to avoid openings in between appointment bookings, send out automated confirmations and reminders, and fill out any downtime in your salon. That will also free your staff up to take care of other duties.
Make Smart Use of Downtime
When your staff isn't busy with clients, make sure they clean, make stock orders, post content to the salon's social media, or assist with other daily duties.
Cross Train Your Staff
In the long run, everyone will profit from this. Preferably, your staff all understand how to perform each service, work the till or add to the salon's website. Anybody can fill in where they're needed, and you will not have to overstaff. Additionally, they'll get important experience for their resumes.
Retain Your Best Stylist
Keep in mind, recruitment and training cost money. If you can keep your finest/ most popular stylists, you'll keep the customers (and earnings) they bring in, too. The secret here is to have effective communication. Make sure that you have a friendly relationship with each stylist and keep the work environment positive.
Reduce Administration Work
Do you really need that many receptionists? What about somebody whose entire job is just handling the stock room and orders? Salon scheduling and management software can remove the necessity for this much additional help. You can easily access figures for ordering items and balancing your books. The majority of younger clients also choose to book visits online in their own time. Make it easy for them.
Do your research and learn just how much things cost. Look for any bulk discounts on products or benefit plans that providers offer. Find out what expenses you can declare on your income tax later.
Utilize Your Salon Space Well
Prevent clutter or wasted space. It looks unprofessional and can become a safety hazard. Also, make certain that you maximize each service space. An effective rule of thumb is to have one backwash for every three service stations.
Use Smart Salon Marketing
Things like email marketing, salon loyalty programs, and encouraging client reviews are efficient and economical methods to increase your earnings margins. You can also have incentives in place for client referrals. Of course, all of this can effortlessly be managed using salon marketing software.
Use a Salon Expense Calculator
Put together with a salon expense spreadsheet, these tools will help you stay mindful and on top of your expenses. You can track earnings and expenses over time and see where you're wasting the most. Then, you can make any changes or remove unnecessary expenses.
Create a Budget Plan for Financial Expenses
The beauty salon budget that you create must include financial costs, in addition to any purchases. That begins with rent, any business license charges required in your city or province, along with staff member wages and payroll. You'll wish to take taxes into account, too. Always set money aside for taxes when you're calculating profit. It will save you from worrying about a lot of the costs later on. Consider working with a professional to help you submit your taxes and review your salon's accounts, even if you prefer to do your own bookkeeping.
Salon Expense Sheet Template
We have prepared a handy template that will assist you in better managing the expenses in your salon.
Complete the form below to get your complimentary salon expenses template.
Running a salon is not cheap. That stated, salon owners and managers can make a healthy revenue if they are smart and use their resources well. The key is to be mindful and remove wasted time, wasted items, and wasted effort. All of these things have a dollar value. Salon expenses do not need to be a big deal. It's easy to remain on top of them if you budget thoroughly and interact well with your clients and personnel. And if you like these ideas or have some other ideas that you've used in the past to promote your salon business, why not share them with the Zolmi community in the comment section below. We would be pleased to answer your questions as well.
The exception is the rule: Underestimating and overspending on exceptional expenses
On the definitions of income, expenses and profit in IFRS
Deferred revenues and the matching of revenues and expenses