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Editor’s note: Part II of this column will appear in the January 2014 issue of Skin Inc. magazine, and will address using tools and systems for cash control, utilizing financial professionals, and the value of constantly evaluating and updating aspects of your business’s finances.
Is your business financially fit? If you are like most, your relationship with your skin care business’ financial aspects may raise more questions than answers.
Being financially fit is knowing where you stand in regard to your business’s financial matters and involves the following.
The information you record should be clear and make sense. Your balance sheet, and profit/loss statement should each fit on one page, and your financial statements should be available to you and be reviewed within two weeks following the end of the preceding month. Here’s the big picture, which should be clearly presented on your profit/loss statement.
Note: Don’t include rental income, gift certificates, memberships, interest, tips or collections.
Organize your chart of accounts so it shows your sales, costs and profitability in this fashion. At a glance, you should be able to see what is working and what isn’t.
Apply these numbers to determine the break-even point, which is the point at which your businesses expenses and revenue are the same. The equation is as follows: Break-even point = overhead expenses + debt service ÷ gross profit margin.
The lower the break-even, the more sustainable your business is. You also need to manage equity. The equation is as follows: assets - liabilities. If you owe more than you own, you have negative equity, which decreases the ability for you to receive financing. Clearly define and communicate your target numbers—if you don’t have targets, you can’t hit them. If you manage these numbers, you can manage your business profitably.
Monte Zwang is a principal of Wellness Capital Management, providing cash flow and financial strategies to businesses in the wellness industry, including medical practices, wellness practitioners and day spas.