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Financial Skills for the Entire Team

Greg Hagin July 2006 issue of Skin Inc. magazine

Many spa owners would like for their team to take more “ownership” of the business and have a greater awareness of the financial implications of their daily work. But how forthcoming should you be about your operation? Although many spa employees do not think of themselves as having strong financial skills, it doesn’t necessarily mean that they should lack responsibility for the business’ financial well-being. In most cases, a worthwhile goal is to have the majority of your team know enough about finance to be able to think like an owner.

A common belief assumes that the owner and manager make considerably more money than they actually do. Because of this perception, the team also may presume that the spa’s financial position is stable. By not regularly observing where the money goes, team members might even think that anything remaining from a treatment price after they get paid goes directly to the spa.

Perspective, not perfection

Most team members would appreciate the opportunity to become more familiar with financial matters, as long as they do not have to concern themselves with number crunching and spreadsheets. They want the perspective without having to strive for perfection. With this in mind, use terms that are easy to relate to, avoiding technical phrases such as “revenue per occupied room” and “room utilization.” Educate on one or two concepts at a time, beginning with the basics, and remember to remain patient. If your team can increase their awareness of what things cost, they naturally will make an effort to save you money.

What does it cost?

Begin by outlining the cost structure of your spa. For example, a good way to start might be to ask, “What does it cost to turn the lights on every day?” The answer would be to factor in rent, utilities, property taxes, licensing fees and general insurance, as well as anything else needed to open the facility. Call it “utility costs,” if you will. You may even want to express it in terms of a certain number of treatments, rather than dollars. In other words, if the answer is $4,000, the first 50 treatments performed each month go toward the utility expenses. Continue by outlining what it costs for the spa to do the following.

Look professional, or appearance costs. Uniforms, flowers, decorations, maintenance and cleaning.

Get the word out, or marketing costs. Brochures, Web site, advertising, marketing and promotion.

Have an office, or administrative costs. Telephone and fax lines, office supplies, computers, IT support, postage and shipping.

Educate the team, or training costs. Classes, tradeshows, associations, membership dues and subscriptions.

Meet payroll, or labor costs. Wages and salaries, vacation pay, bonuses, payroll taxes, workers’ compensation insurance, medical benefits and retirement plans. (These can be expressed in percentages, so that the actual numbers are less obvious.)

By now, your team will begin to get the picture that, in order for the spa to spend more, additional revenue must be generated. If revenue is lean, expenses must be kept to a minimum. Once they have grasped the general cost structure of the business, as well as the relationship between revenue and expense, they will be open to learning more.

Keep it real

Each job in a spa has a direct influence on the financial performance of certain revenue and expense categories. Keeping it real entails maintaining a connection between the financial information and a specific job. Just as you teach your team what the duties are for each position, also explain how each contributes to a revenue stream or an expense category. For example, team members contributing to the services revenue might include receptionists, spa desk coordinators, group salespeople, service providers and managers. These employees would benefit from learning the financial dynamics of services revenue.

A short list of financial ratios for the spa services revenue might include basics, such as total spa revenue, services revenue and net operating profit, as well as specifics, such as departmental labor costs, product costs, average revenue per day/week, average number of services per client and administrative costs. Learning to interpret a simple management report, such as the services sales analysis, also would be beneficial. Introduce these concepts slowly—preferably during a one-on-one meeting. This way, team members can ask questions and learn at their own speed.

Educating the team

When explaining ratios, make sure you first clarify why you are tracking something and what information it provides to the spa management team. For example, discuss the service sales analysis report with the spa receptionist. This report indicates how many of each service were sold during a specific time period. Explain that this report determines how well menu items are selling and how successful specific sales efforts are in producing results. Discuss how this report is referenced when deciding which treatments to keep on the menu and which to eliminate.

Make sure to review each team member’s impact on a report by pointing out specifics influenced by their performance: “Remember the big group you booked last Thursday? They all had facials, which is one reason why we sold so many this month and our retail sales were higher.” As they learn, ask them for ideas on how to improve the spa’s financial performance. This acknowledges the team’s role in the management process, which is to help generate ideas and help with implementation. It also gives them a degree of ownership in their respective areas and a sense of responsibility for improvement.

Massage therapists can benefit from understanding the service sales analysis report, as well. They should be aware of what the spa’s marketing expenses, laundry costs, utilities costs, product cost percentages and client satisfaction surveys signify. Estheticians should be knowledgeable about retail sales, provider sales reports and product cost percentages. For each job in the spa, there should be a corresponding report.

Boundaries

Depending upon your level of comfort with your team, the question of boundaries is sure to come up at some point. It is important to determine how much information to share, always assuming that what is said to one team member likely will be passed on to others. Data regarding payroll and labor costs obviously is one area in which you may want to be particularly careful, because much of this information is confidential. Proceed at your own discretion.

At a minimum, the team should understand basic principles, if not the actual numbers of the income statement. They should completely grasp the concept of adjusting costs to align with clients’ demand for the spa’s services and the concept of fixed—or overhead—costs versus variable—or demand-dependent—costs. In this way, the team’s expectations will be in line with what is financially feasible.

Reminders

The old restaurant trick of hanging plates on the wall of the dish room with the price of each plate is an excellent example of a way to remind your team of the cost of doing business. People tend to forget what a towel costs to wash or replace. Visuals such as this naturally can reinforce conservation habits. Hang one of each item in the laundry area with its cleaning and replacement costs written on it.

Customize your reminders to fit the needs of your operation. Whether your biggest challenge is utilities, such as light switches, water and thermostats; product portion control for treatments; client supplies, such as robes, sandals and amenities; or safety, such as slips, accidents and incidents, get creative and place tasteful reminders where they will be noticed by your team during the course of the day.

Don’t ever stop

Employees want to know about their workplace, and what they don’t know they are likely to misperceive, based on inaccurate assumptions. Financial matters are an important part of the knowledge they need in order to feel secure in what they do. Your commitment to teaching them will be repaid with increased loyalty and their growing ability to think like an owner as they perform their daily jobs. Customize your approach to best fit your operation, and teach job-appropriate information for each position. Above all, educate your team right away, and don’t ever stop.

 

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