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Profit and Loss Management

By: Anthony Silvestri
Posted: March 28, 2011, from the April 2011 issue of Skin Inc. magazine.

In the spa industry, it is essential to know your current cash position in order to be better prepared for the uncertain future. Ask yourself: What is my spa’s current cash position? Where is my cash tied up? How can I increase my cash position?

These questions can be answered by first creating a profit/loss statement. Be sure to include all revenues and expenditures in order to have the best perspective and overview of where your company currently stands. Start with your major expenses; the largest of which will probably be labor, with the industry average of approximately 47% of total sales. Then, create subcategories for your expenses. For instance, administrative fees, spa professional service compensation and retail commission would all be subcategories of labor expense.

Next, peruse your service menu and assign costs and supplies that are associated with each service. All supplies should be applied to the department or service in which they are used. This step should include everything from the products used during a treatment to the spa professional’s compensation for performing the service.

The goal for this process is for you to know the total cost associated with every service on your menu, offering insight as to which services are the best moneymakers. Set a benchmark percentage for cost of services for each department in your spa that will allow you to remain profitable. The average costs of service for each department will be slightly different.

Take a good look at your supply expenses. This will most likely be your second largest expense, with the industry average at 11% of total sales. If you don’t know how much retail- or service-related inventory you have at your location, you need to perform a physical inventory count to be able to accurately assess your current liabilities. After performing the inventory, take a good look at the retail products that you have on hand. What you are most likely going to see are inventory items that are slow moving, which own you until you can sell them or write them off. If you have a few items in a particular product line that are not moving, it’s time to review the contract with that specific manufacturer. Also, if there are supplies you use in abundance, you may want to do some price comparisons. Saving just a little on frequently used supply items can quickly add to your bottom line.