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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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Competition. Too many spas are suckered into pricing to match the guy down the street. You are on more solid ground with cash flow when you charge based on your real cost factors flagged on those daily reports.

Seasonality. January is a very hungry cash month, as clients redeem gift certificates, a situation Adams admits still causes him grief. Tax deadlines make April horrible as well, says Hart. And count on vacations biting into July and August sales. Certainly theme promotions during these dog days help, but don’t count your clients before they slide into your slippers.

Misreading sales pitches. Your equipment sales representative’s job is to explain her product performance numbers in easy-to-understand terms, so you know she is not lying when she says charging $80 per session pays for the table in a month. However, as Hart points out, many owners forget they still have to pay sales staff and their taxes and for advertising to bring in that client, in addition to the space lease, credit card fees and a myriad of other expenses.

Pollyanna thinking. Open a worksheet, type in numbers that reflect a crash in advertising response, a rate increase from vendors, hiring an additional employee to help on the weekends—then make the computer spit out the impact on your available cash. “In some cases, a 5% decrease from your expectations means a new business idea is a cash drain,” says Magos. In that case, pull the stopper before you take a bath.

Swim to shore

Once cash flow problems swell, your options ebb. Ask Berry, whose business cash flow last decade forced him to secure a second mortgage on his home for $120,000 to bail out. He also racked up $65,000 in credit card debt trying to keep things afloat in the earlier days. “When I talk about cash flow, I know why you don’t want to wait until things are bad,” the entrepreneur says today.