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Examining Critical and Essential Expenses

By: Anthony Silvestri
Posted: April 29, 2011, from the May 2011 issue of Skin Inc. magazine.

In today’s economy with increasing expenses, high unemployment and turnaround uncertainty, all businesses are looking for ways to cut expenses. However, even in a good economy, improving your sales-to-expense ratio is critical for long-term success, enabling you to weather present and future financial storms.

A firm understanding

The first step in establishing cost-cutting measures is to have a firm understanding of your spa’s finances. Preparing a monthly, quarterly and yearly cost-of-operations and revenue report will let you see exactly where your revenue is being spent by expense type. Leave nothing out of this report; the more detailed the better.

Hone in on critical and essential expenses, and search for room to reduce them. Set expense-reduction goals, then seek out methods for reduction.

Critical. These are expenses that cannot be eliminated and are essential to operations, such as rent, utilities, communications and salaries. Even though they can’t be eliminated, there are ways to reduce or contain them. Examples of critical expense reductions include the following:

Essential. These are supplies that have a direct effect on services; without them, services can’t be performed. Reductions here can be found in controlling waste and eliminating unprofitable products or services, thus saving money.