One profit-boosting step your salon should introduce today

22 Jan 2018

Written by Alice Smithson

Tim Emmony, Managing Director at MNE Accounting provides insights and real-life experiences in helping to turn an underwhelming break-even hair salon into a profitable hairdressing group.

Running and growing any business is challenging. No truer word can be said for hair salons. Competition has reached boiling point with supposedly over 40,000 salons throughout the UK and 12 new salons popping up on our high streets every week.

The importance for salon owners to find competitive advantages is important. If there was one thing I’d recommend any hair salon or beauty business to do it would be this – use your salon software to feed stock data into timely management accounts.

Our client boosted its profits and greatly improved its margins, and with a little planning and focus your salon can too.

Invest in management reporting

Prior to our involvement, our client had made business decisions based on professional opinion. The salon owner and management team had made assumptions about so many different parts of their business on little or no support from their software.

Solid stock reporting is the first step to getting a tight grip on the finances of your hair salon. Some of the things we helped our client to understand included:

  • Profitability of different areas of their business
  • The margin they were achieving on sales
  • How much stock is being used compared to the amount they had forecasted
  • The number of client visits within a year
  • The number of client visits per stylist

The desire to increase profit margins and reduces costs will always be at the top of any salon owner’s wish-list. However, how can you be sure of the best way to increase your margins? Without accurate information, how do you know where you are spending your money?

In such a competitive marketplace like the hair and beauty industry, when the going gets tough, the thoughts of most business owners might be to cut staff numbers, not realising there are other ways to compete. Management accounts fed by tools such as iSalon play an important role and are helping salon owners make better decisions when looking to reduce costs and identify areas to improve profits.

One of the features of the iSalon software is it gives greater efficiency and control over the management of stock. Perhaps our greatest success with our client was to take their professional product spend down from 24% to 16% of sales, saving just shy of £100,000 in the process. By controlling their retail stock effectively, the salon has gained £47,000 profit. £47,000 that just didn’t exist the previous year. This was achieved on the same turnover – and it went straight on to the bottom line.

A couple of considerations if you’re thinking about improving management accounts in your salon:

  • It’s not possible to produce management information without excellent data – which means good bookkeeping practises
  • Management accounts are more than just pressing print on a profit and loss statement – and accurate stock figures being fed into them are vital.