The accounting aspects of a skin care facility are difficult for many to master. Your education and background are not in accounting, and it can be tedious, difficult and frustrating. You know it’s important to understand for the sake of your business, but it gets put on the back burner because the day only has 24 hours to finish all your work, and you have to sleep a few of those hours, right? I hear you. However, understanding just three key aspects of your business will make you more money, right your ship and help you navigate through these tough economic times.
A road map to your success
How can this be? Plain and simple: If you invest the time to set up a basic business plan and organize your financial statements correctly, they will provide you the road map to your success. A business plan informs you about the financial limits you have to work with to make your vision happen and helps you make the right decisions before spending a dime.
Many fantastic and talented skin care facility owners find themselves generating great revenue each month, but not having enough money in the bank to cover monthly expenses or repairs. They find themselves putting more money into their facilities through personal loans, lines of credit and credit cards; not paying themselves and; worse yet, using all the money collected from gift-certificate sales to cover immediate expenses. This is a sign that expenses are not in line with revenues, and means that, throughout time, the business will probably not succeed. How is the problem solved?
Three key aspects
First, evaluate your business plan and look at three key aspects called cost of goods sold (COGS). Simply put, these three aspects—therapist compensation, products and supplies used in services, and the cost of the retail products you sell—are literally the lifeblood of your skin care facility. If you control them, you control the long-term success of your business for you and your employees.
Second, create a plan to bring these costs in line as a maximum percentage of your revenue, which will allow you to cover the rest of your operating expenses, earn a profit and pay yourself.
The first step in evaluating the three key aspects—therapist compensation, products and supplies used in services and the cost of the retail products you sell—is to look at the numbers in total. If your total COGS is more than 55% of the total revenue you generate, then you have some work to do. Set a plan to operate at or below this goal, no matter the size of your skin care facility. Impossible? No. Daunting? Maybe. Doable? Completely. Here are the goals you must set for your COGS as a percent of each revenue category.
- Therapist compensation—No more than 35% of total revenue
- Products and supplies used to provide a service—No more than 8% of service revenue
- Price you pay for retail products you sell—No more than 45% of retail revenue
Part II of this column, which will appear in the April 2012 issue of Skin Inc. magazine, will go into detail about how to achieve these numbers in all three categories,resulting in a successful, profitable business.
Patrick Vande Weg is a certified public accountant, and owner and CFO of the award-winning Stellar Spa in Corte Madera, California. He has been involved in the spa industry for 15 years as an owner, operator and business educator. Vande Weg’s “Planning Equals Profitability: Strategic Spa Business Series” is an advanced business education series developed and refined through years of practical hands-on experience and real-world challenges. He can be contacted at email@example.com.