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Go With the Flow

By: Julie Sturgeon
Posted: July 22, 2008, from the March 2007 issue of Skin Inc. magazine.

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Next, use the reports to log payment due dates on the calendar. “A lot of owners can’t keep it in their banks, so if you’re poor at cash flow, spread these payments out. Set up payroll to fall on weeks when you don’t owe rent,” advises Leita Hart-Fanta, a self-employed certified public accountant (CPA) in Austin, Texas. The strategy of paying one or two bills a week focuses attention on the situation daily.

“The problem is you make spending decisions one at a time, in small increments,” Berry explains. “Suddenly you turn around and your fixed costs have gone up by 50–60%, and you’ve forgotten that cash flow on the balance sheet is what really pays those bills.”

Heather Gray has only owned The Spa of Groton in Groton, Massachusetts, since January 2006, but she understands these basics. She files her bills by the week they are due, “so if I don’t have a lot of bills due one week, I can start paying the next week’s and not be caught by surprise,” she says.

For Gary Adams, owner of Georgetown Day Spa in Charlotte, North Carolina, the fact that you never conquer cash flow keeps him vigilant with the numbers. “You can have a day that, based on appointments, looks very slow. Then to your surprise, you have a high volume of product and gift certificate sales and walk-in appointments. On the other hand, you may have a day that looks fantastic on the books, but everyone pays by redeeming their gift certificates, and no one buys products that day,” he says.

Drowning victims

Magos admits some situations call for deliberate cash flow shortages because their benefits far outweigh the temporary pinch. After all, the greatest profit lies in product more than services, so savvy owners take advantage of quantity discounts. But a majority of the time, owners find themselves gasping for cash thanks to these unwelcome situations.