OPERATIONS MANUAL BOOK TWO

Transcription

1 OPERATIONS MANUAL BOOK TWO MANAGING YOUR FINANCES Copyright 2017, Regis Corporation. All rights reserved. This publication may not be reproduced, stored in a retrieval system, or transmitted in whole or in part, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise without the prior written permission of Regis Corporation, 7201 Metro Boulevard, Minneapolis, Minnesota

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3 CONTENTS HISTORY OF SUPERCUTS... 7 OVERVIEW OF THE OPERATIONS SYSTEM... 8 OVERVIEW OF BOOK TWO... 9 SECTION A: ACCOUNTING ACCOUNTING OVERVIEW ACCOUNTING GENERAL CHART OF ACCOUNTS DAILY REPORT FORMS CHECKBOOK GENERAL LEDGER SUGGESTED CHART OF ACCOUNTS PROFIT & LOSS REVENUE OR SALES ACCOUNTS COST OF SALES ACCOUNTS FRANCHISEE PROFIT & LOSS STATEMENT SAMPLE BALANCE SHEET BALANCE SHEET SAMPLE BREAK-EVEN ANALYSIS FIXED AND VARIABLE COSTS HOW TO CALCULATE BREAK-EVEN TRENDS TREND ANALYSIS SAMPLE CASH BASIS ACCOUNTING ACCRUAL BASIS ACCOUNTING BILL PAYING/ACCOUNTS PAYABLE CASH BASIS METHOD ACCRUAL BASIS METHOD HANDLING OF BILLS AND PAYABLES MONTHLY SALES (ROYALTY) REPORT EROYALTIES REPORT SAMPLE FINANCIAL TOOLS FOR YOUR BUSINESS BOOK TWO MANAGING YOUR FINANCES 3

4 BREAK-EVEN TEMPLATE SALES & GUEST COUNT RAMP-UP DOCUMENT BUDGET TEMPLATE READY REFERENCE METRICS FOR YOUR BUSINESS FINANCE GLOSSARY FAQS SECTION B: ACCOUNTS RECEIVABLE CREDIT POLICIES FRANCHISE ROYALTY (RY) & ADVERTISING FEES (DMA) PRODUCT ORDERS SUPERCUTS STRIKE POLICY TERMS FOR THE ACCOUNTS RECEIVABLE (AR) DEPARTMENT PAYING BY CREDIT CARD PAYING BY AUTO DRAFT PAYING BY WEBSITE ACH (AUTHORIZATION FOR DIRECT PAYMENT) FORM SAMPLE FIRST SALON OPENING: AUTO DRAFT (ACH) DETAIL AUTO DRAFT (ACH) DETAIL CALENDAR EXAMPLE GRAND OPENING FEE INVOICE SAMPLE PRODUCT ORDER INVOICE SAMPLE TRAINING INVOICE SAMPLE ACCOUNTS RECEIVABLE GLOSSARY FAQS SECTION C: COMPENSATION & BENEFITS COMPENSATION OVERVIEW PAY PLAN PREPARATION PAY PLANS RETAIL COMMISSION STYLIST PAY PLANS SAMPLE PAY PLAN MANAGER PAY PLANS TEAM-BASED BONUS PLAN TEAM-BASED BONUS PLAN EXAMPLE BOOK TWO MANAGING YOUR FINANCES

5 GENERAL MANAGER/DISTRICT MANAGER/AREA SUPERVISOR PAY PLANS RECEPTIONIST PAY PLANS BENEFITS BOOK TWO MANAGING YOUR FINANCES 5

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7 HISTORY OF SUPERCUTS Back in 1975, there were really only two choices for getting a haircut and style barber shops for men or beauty salons for women. There was nothing in-between. So Frank Emmett, a beauty school instructor, and Geoffrey Rappaport, his former student, created the first Supercuts in California A convenient, a la carte, no-appointment salon choice for men, women, and children. What happened next? It revolutionized the industry. How do we continue to revolutionize the industry today? We listen to our guests. And guess what they want? A quality cut with sharp, clean lines, finished with a hot towel to get rid of stray hairs leaving them feeling refreshed and ready to go A sole focus on our guest we want to be mindful of our guests needs at each step during their visit A warm & friendly environment that makes our guests feel welcome A consistent, quality service; each guest is an opportunity for us to demonstrate our technical expertise and exceptional service Supercuts focus on what our guests want has created a very successful brand that promises to pay Attention to Detail. That is what we deliver to each and every guest. BOOK TWO MANAGING YOUR FINANCES 7

8 OVERVIEW OF THE OPERATIONS SYSTEM Following is a brief description of the purpose and content of each book. BOOK ONE - OPENING YOUR SALON The purpose of Book One is to provide franchisees with recommendations for selecting, constructing and preparing the salon for opening day. The book contains information on Real Estate, Construction, Pre-Opening Operations, Franchise Product Sales, Marketing, and Grand Opening. BOOK TWO - MANAGING YOUR FINANCES The purpose of Book Two is to provide franchisees with a recommended system of monitoring and controlling the financial flow of their salon. The book contains information on Accounting, Accounts Receivable, and Compensation & Benefits. BOOK THREE - MANAGING YOUR SALON The purpose of Book Three is to provide franchisees with recommendations on how to manage the salon on a daily basis. The book contains information on Guest Experience, Daily Operations, Asset Protection, Sanitation, Scheduling, Service Menu, Inventory, Franchise Product Sales Programs, and Goal Setting. BOOK FOUR - LEADING YOUR TEAM The purpose of Book Four is to provide franchisees with recommendations for leading and developing a successful team. The book contains information on Recruiting, Interviewing and Hiring, Onboarding, Education, Employee Development, Retention, and Coaching Non- Performance and Performance Reviews. 8 BOOK TWO MANAGING YOUR FINANCES

9 OVERVIEW OF BOOK TWO PURPOSE Book Two is designed to provide new franchisees with a recommended system to monitor and control the financial aspects of their salon. This system can be used as a guide for putting all financial tools in place and preparing to hire employees. Franchisees with existing salons can use this information as a reference of the financial support services available. OBJECTIVES After reading this manual, franchisees will: Know what accounting systems should be in place before opening the salon. Understand credit terms and the accounts receivable process at Regis Corporation. Be familiar with ideas for designing your employee compensation plans. Recognize the opportunities available for support from the Regis Financial Team. BOOK TWO MANAGING YOUR FINANCES 9

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11 SECTION A: ACCOUNTING The Operations Manual contains information and recommendations intended to help you successfully open and operate your franchised store in compliance with the system, brand, and your Franchise Agreement. Your Franchise Agreement is the complete statement of your rights and obligations in the operation of your store. In the event of a conflict between the Operations Manual and your Franchise Agreement, your Franchise Agreement controls. BOOK TWO MANAGING YOUR FINANCES 11

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13 ACCOUNTING OVERVIEW ACCOUNTING GENERAL It is the goal of Supercuts to establish a certain standardization of our accounting data so that our discussions, reviews and comparative analysis will be more meaningful to you, the franchisee, and also to us, the franchisor. The purpose of this section is to suggest standards for accounting and bookkeeping. CHART OF ACCOUNTS The suggested Chart of Accounts is presented on pages The account names used in this chart should satisfy requirements for both Profit & Loss Statement and Balance Sheet preparation as normally used in the Supercuts salon activities, however, you may find some that you will not use, and the need for some not shown. If a type of account seems appropriate by being significant and/or repetitive, it should be used. The important thing in the use of any Chart of Accounts is the consistency of application month after month. Supercuts suggests the following for the basic books of original entry for the business: Daily Report Forms Checkbook General Ledger These elements can make up the entire accounting system suitable to your business needs. Your accountant should be able to suggest a software package that will meet your needs and tie these forms together. The following page describes each element. BOOK TWO MANAGING YOUR FINANCES 13

14 DAILY REPORT FORMS The salon s daily sales summary and sales production report are examples of daily report forms that may be used and are found in the SuperSalon Point of Sale (POS) system. Generated from these reports, which are prepared daily and then combined on a monthly basis, are some of the entries into a general ledger system. The reports should be cut off properly on the first and last day of the month so that sales and all other items are recorded on the basis of one calendar month. It is suggested that the categories of sales, cash, and expenses be coded with the appropriate account number as designated by the Chart of Accounts. Whether you are performing your own accounting function or using the services of an outside accounting firm, you will soon discover the benefit of proper number coding of income and expense classifications. CHECKBOOK Checks should have your business name on them, not Supercuts. If desired, it may read DBA/Supercuts after the name of the company. You will be writing checks and completing the check stub portion, or a voucher section, to describe the purpose of the check. Affixing an account number to the described stub will greatly facilitate its entry at a later time. It is important to point out with payroll check writing that all taxes withheld from employees in each payroll period should be immediately disbursed to the depository bank you select for that purpose. Not only those taxes withheld, but the employer s FICA taxes must be deposited on a regular basis. Federal and state laws impose high penalties for failure to deposit payroll taxes in a timely manner. You may wish to use a payroll service to prepare your payroll checks, tax filings and W-2 forms. However, there are also many good payroll software programs available. There is more information on opening a bank account in the Pre-Opening section of Book One. GENERAL LEDGER A general ledger is used in a small business. It contains a page for every account in the Chart of Accounts to which all entries from all records would be entered on a monthly basis. Totals of the various accounts on a monthly basis provide the information to produce the financial statements, Balance Sheet, and Profit & Loss Statement. 14 BOOK TWO MANAGING YOUR FINANCES

15 SUGGESTED CHART OF ACCOUNTS ASSET ACCOUNTS 1000 CASH IN BANK 1010 CASH ON HAND 1100 ACCOUNTS RECEIVABLE 1200 PREPAID INSURANCE 1300 PREPAID INTEREST 1400 INVENTORY 1500 LAND 1600 BUILDING 1605 ACCRUED DEPRECIATION. BUILDING 1620 FURNITURE, FIXTURES AND EQUIPMENT 1625 ACCRUED DEPRECIATION FURNITURE, FIXTURES AND EQUIP LEASEHOLD IMPROVEMENTS 1645 ACCRUED DEPRECIATION LEASEHOLDS 1700 FRANCHISE LICENSE FEE 1705 ACCRUED AMORTIZATION LICENSE FEE 1800 NOTES RECEIVABLE LIABILITY ACCOUNTS 2000 ACCOUNTS PAYABLE 2100 NOTES PAYABLE BANKS 2200 NOTES PAYABLE OFFICERS 2300 WITHHELD FICA TAXES 2310 ACCRUED FICA TAXES 2320 WITHHELD FEDERAL TAXES 2330 WITHHELD STATE TAXES 2340 WITHHELD CITY TAXES 2350 ACCRUED STATE UMEMPLOYMENT INSURANCE (SUI) TAXES 2360 ACCRUED FEDERAL UNEMPLOYMENT INSURANCE (FUI) TAXES 2370 ACCRUED STATE SALES TAXES 2380 ACCRUED CITY SALES TAXES 2400 ACCRUED PAYROLL 2500 INCOME TAXES PAYABLE 2600 GIFT CARDS OUTSTANDING 2650 NOTES PAYABLE LONG TERM 2700 MORTGAGES PAYABLE EQUITY ACCOUNTS (Proprietorship) 3000 CAPITAL OWNER 3100 DRAWING OWNER 3200 CURRENT YEAR EARNINGS EQUITY ACCOUNTS (Corporation) 3000 COMMON STOCK BOOK TWO MANAGING YOUR FINANCES 15

16 3100 PAID IN CAPITAL 3200 RETAINED EARNINGS REVENUE OR SALES ACCOUNTS 4000 SERVICE SALES 4100 PRODUCT SALES 4200 MISCELLANEOUS COST OF SALES ACCOUNTS 5000 MANAGER PAYROLL 5020 STYLIST PAYROLL 5040 RECEPTIONIST PAYROLL 5100 PRODUCT COMMISSIONS 5120 VACATION PAY 5140 HEALTH INSURANCE/BENEFITS 5200 PAYROLL TAXES 5300 COST OF PRODUCT RETAIL 5320 COST OF PRODUCT SERVICE 5400 ROYALTY FEES 5500 AD FUND OPERATING EXPENSES 6000 GENERAL ADVERTISING 6020 RECRUITING 6060 RENT EXPENSE 6080 REAL ESTATE TAXES 6100 RENT CAM, ETC AUDIO EXPENSE 6140 AUTO EXPENSE 6160 BAD DEBT EXPENSE 6180 BANK CHARGES 6200 CASH OVER/SHORT 6220 CHARGE CARD FEES 6240 CONTRACT MAINTENANCE 6260 DUES AND SUBSCRIPTIONS 6280 EMPLOYEE EXPENSE 6300 INSURANCE 6320 LICENSES & PERMITS 6340 MISCELLANEOUS 6360 POS EXPENSE 6380 POSTAGE/FREIGHT 6400 REPAIRS & SERVICES 6420 SECURITY EXPENSE 6440 STORE SUPPLIES 6460 TAXES 6480 TELEPHONE & INTERNET 6500 TRAINING 16 BOOK TWO MANAGING YOUR FINANCES

17 6520 TRAVEL & ENTERTAINMENT 6540 UTILITIES EXPENSE 6560 WORKMAN'S COMP. INSURANCE 6580 OTHER FRANCHISEE EXPENSE OVERHEAD EXPENSES 7000 AMORTIZATION EXPENSE 7100 AUTO LEASE EXPENSE 7200 DEPRECIATION 7300 MANAGEMENT AND SUPERVISION 7400 OFFICE EXPENSE 7500 PROFESSIONAL FEES 7600 OTHER EXPENSE/INCOME BOOK TWO MANAGING YOUR FINANCES 17

18 PROFIT & LOSS The Profit & Loss Statement (P&L) or Income Statement of a business is a reflection of its activity over a period of time. The statement is prepared for the period of a calendar month, starting with the first month s activity and accumulating each month s activities to the close of the fiscal year. A determination of the fiscal period to be used is a judgment to be made by you and your accountant. The Profit & Loss Statement is an important tool and should be prepared with extreme accuracy as quickly after the close of a month as possible. When this statement is properly set up, consistent bookkeeping and accounting practices have been adhered to during the period reflected, its early examination and study can determine for the franchisee the areas in the business needing further attention. This is strongly recommended and imperative, especially in the initial year of operation. Pages show a suggested format for the Profit & Loss Statement. This format displays the important details and relationships which must be closely watched in order to have a successful business. A few comments regarding the format are listed below. REVENUE OR SALES ACCOUNTS Services Revenue or sales from services performed minus discounts. Product Revenue or sales from product sales minus discounts. Total Sales Comprised of services and product; reported on the monthly sales (royalty report); lease may require you to report total sales to the landlord where they make up the basis for percentage rent. 18 BOOK TWO MANAGING YOUR FINANCES

19 COST OF SALES ACCOUNTS DIRECT SERVICE COST Stylist Payroll Reflects one of the highest individual costs of your business. This category relates to the respective category of service sales and these percentage relationships must be reviewed regularly and controlled constantly. NOTE: It is suggested that if the franchisee is a stylist working behind a chair, the amount paid to the franchisee related to working behind the chair should be reflected in this category. If it is not, a distortion of labor cost, as compared to other salons or the industry, will result. Again, service labor costs relate respectively to service sales. Payments to the franchisee not relating to working behind the chair should not be shown here. Such payments are generally shown below the Salon Contribution Margin on the Profit & Loss Statement. Manager Payroll The total payroll cost of the manager. This category includes all wages and may include incentives or bonuses. This cost relates to service sales. Receptionist Payroll The total payroll cost of the receptionist, if you have one in the salon. This cost relates to service sales. RETAIL PAYROLL COST Product Commission Commission earned on the sale of retail products related to retail sales. OTHER SERVICE COSTS Payroll Taxes The employer s portion of payroll taxes for stylists, managers, and receptionists. For example, Federal Insurance Care Act (FICA), Federal Unemployment Insurance (FUI), State Unemployment Insurance (SUI), and other taxes relating to employment. Health Insurance/Benefits All costs incurred for health insurance, pay back the future, and other offered benefits. Vacation/Holiday Pay Pay for paid vacations and/or holidays. BOOK TWO MANAGING YOUR FINANCES 19

20 PRODUCT COST Cost of Product (Retail) The cost of product purchased for to be sold as retail. When benchmarking, this amount is related to retail sales. Cost of Product (Service) Product purchases, or transfers out of inventory, to perform services. For example, color, wax, shampoo or styling. When benchmarking, this amount is related to service sales. NOTE: The costs reflected in this category are properly accumulated by this formula: Beginning Inventory Plus Purchases Less Ending Inventory Product Cost of Sales $XXX + $XXX - $XXX = $XXX It is assumed in this example that any discounts received upon purchase of product are booked at the net cost. There is more information on Product Margins found in the Franchise Product Sales section of Book One. FRANCHISE FEES Royalty Fees Reflects the royalty paid to Regis Corporation. This cost relates to total sales. Ad-Fund Reflects the payments made to the Supercuts Ad Fund. This cost is calculated based on your net service sales. OPERATING EXPENSES Advertising Expense Reflects general advertising and recruitment expenses. General advertising is marketing spent above and beyond the Ad-Fund. Recruitment expenses are costs related to finding and hiring staff. Rent Expense Represents rent, common area maintenance, and real estate taxes paid on the property. There are several other categories and for the most part, are self-explanatory. Again, if an item of expense arises which does not appropriately fit in one of these classifications, and is significant and repetitive, a new classification should be provided. OVERHEAD EXPENSES 20 BOOK TWO MANAGING YOUR FINANCES

21 It is found that certain items of expense may apply in some businesses and not in others. One of the most common is automobile lease expenses or the use of a van, which may be entirely written off against the business. In these cases, we suggest a separate classification below the total salon contribution so that the Profit & Loss Statement will be more comparable with other salons. Likewise, in the case of a franchisee s salary, supervisory positions or home office staff, these expenses should be reflected in a separate category. The salaries suggested here are over and beyond the amount paid to the salon payroll which may have been classified in Direct Service Cost. The costs in this category are referred to as overhead expenses. Finally, because certain options are available in the selection of the method of depreciating your fixed assets, we suggest that depreciation expenses be shown in this category. By removing overhead expenses, we feel that a more standard basis of determining total salon contribution will result. SUMMARY The Profit & Loss Statement not only displays the overall profitability of the business, but perhaps equally important, it identifies for each segment of the business the profit and loss in that section. Thereby, it signals when action must be taken in the area of advertising to bring in more guests, when more sales training should be applied because retail sales are low in ratio to total sales, when payroll costs are too high or too low, and of course, when operating costs become out of line. NOTE: Per your Franchise Disclosure Document (FDD), Regis reserves the right to review your individual salon P&L statements upon request. BOOK TWO MANAGING YOUR FINANCES 21

22 FRANCHISEE PROFIT & LOSS STATEMENT SAMPLE SALES: Service Sales Product Sales Other Revenue from services performed - less discounts Revenue from product sales - less discounts All other store revenue TOTAL SALES $ - All revenues COST OF SALES: Service Cost: Stylist Payroll All wages paid to stylists (excluding product commissions) Manager Payroll All wages paid to store managers (excluding product commissions) Receptionist Payroll Wages paid to receptionists (excluding product commissions) DIRECT SERVICE COST $ - All service wages Product Payroll Cost: Product Commissions Commissions paid to employees for product sales PRODUCT PAYROLL COST $ - All product payroll costs, as a percentage of Total Sales Other Payroll Cost: Payroll Taxes Employer portion of payroll taxes Health Insurance/Benefits Health insurance, other benefits, etc. Vacation/Holiday Pay Vacation and/or holiday pay OTHER PAYROLL COST $ - All other payroll costs TOTAL PAYROLL $ - Direct Service Cost + Product Payroll Cost + Other Payroll Cost Product Costs: Cost of Product - Retail Cost of products for resale Cost of Product Sales Cost of products for resale, as a percentage of Product Sales Cost of Product - Service Cost of products to perform services (back bar) Cost of Service Sales Cost of service products, as a percentage of Service Sales TOTAL PRODUCT COST $ - All products costs Franchise Fees: Royalty Fees Ad Fund Royalty payments made to corporate Payments to the Supercuts ad fund TOTAL FRANCHISEE FEES $ - All franchise fees TOTAL COST OF SALES $ - Total Payroll + Total Product Cost + Total Franchise Fees GROSS PROFIT $ - Total Sales ( - ) Total Cost of Sales 22 BOOK TWO MANAGING YOUR FINANCES

23 FRANCHISEE PROFIT & LOSS STATEMENT SAMPLE OPERATING EXPENSES: Advertising Expense: General Advertising Recruitment Other advertising expenses Recruiting of employees TOTAL ADVERTISING $ - All advertising expenses Rent Expense: Common Area Maintenance Real Estate Taxes Rent Payments to landlord for center maintenance Taxes paid on the property All rent expenses (excluding common area maintenance & real estate taxes) TOTAL RENT $ - All rent expenses Other Store Expenses: Audio Expense Automobile Expense Bad Debt Expense Bank Charges Cash Over/Short Charge Card Expense Contract Maintenance Dues & Subscriptions Employee Expense Insurance Licenses & Permits Miscellaneous Expense POS Expense Postage/Freight Repairs & Services Security Expense Store Supplies Taxes Telephone & Internet Training Travel & Entertainment Utilities Workers Comp Insurance Other Franchisee Expenses Music Mileage or other reimbursements (excluding lease payments) NSF checks and any other costs associated with collecting bad debts Charges from the bank to maintain the account Additional/missing money from the till Charge card processing fees Periodic maintenance performed on the store Magazine subscriptions and any annual dues that are paid Expense paid for employee goodwill, such as holiday parties General business insurance (excluding health or workers comp insurance) Business licenses and city/state permits Small expenses that cannot be classified in other accounts All POS costs, including lease Postage and freight expenses (excluding product related) Repairs/maintenance performed on the store Security system Supplies needed for store use such as retail bags, light bulbs, paper supplies, etc. General business tax Telephone & Internet expenses for the store Employee training (excluding payroll) Travel, meals & entertainment for business purposes Utilities such as gas, water, electric (excluding telephone) Workers compensation, including premiums and claims Any other large store related expense not listed above TOTAL OTHER EXPENSES $ - All Other Store Expenses TOTAL OPERATING EXPENSES $ - Total Advertising + Total Rent + Total Other Expenses TOTAL STORE CONTRIBUTION $ - Gross Profit ( - ) Total Operating Expenses BOOK TWO MANAGING YOUR FINANCES 23

24 FRANCHISEE PROFIT & LOSS STATEMENT SAMPLE OVERHEAD: Amortization Automobile Lease Expense Depreciation Management and Supervision Office Expense Professional Fees Other Expense/(Income) Amortization of leasehold improvements, franchise fee, equipment Automobile lease expenses paid for supervisors or home office employees Depreciation of leasehold improvements, franchise fee, equipment All costs associated with supervisors and general office employees Costs associated with your home office (excluding employees) Costs for attorneys, outside accountants or other professionals Other income or expense TOTAL OVERHEAD $ - All overhead costs, as a percentage of Total Sales CONTRIBUTION AFTER OVERHEAD $ - Total Store Contribution ( - ) Total Overhead 24 BOOK TWO MANAGING YOUR FINANCES

25 BALANCE SHEET The Balance Sheet of a business is a display of its assets, liabilities, and net worth at a given moment in time. It is a creation of values that have been produced through the day-by-day activity of the business. The Balance Sheet is generally produced at the end of each month or as often as a Profit & Loss or Income Statement is developed. The connecting or balancing link between the Income Statement and the Balance Sheet at each closing is the net profit, which becomes an addition to the franchisee s equity or net worth section of the Balance Sheet. The Balance Sheet is important to the franchisee for purposes of obtaining bank loans, extensions of credit from suppliers, control of assets and liabilities, and establishment of the value of the business. Pages show a suggested format for the Balance Sheet. The format is generally acceptable, although your accountant may desire a further breakdown or different display. BOOK TWO MANAGING YOUR FINANCES 25

26 BALANCE SHEET SAMPLE SUPERCUTS - ANYTOWN BALANCE SHEET AS OF ASSETS CURRENT ASSETS CASH IN BANK $ XX CASH ON HAND XX $XXX ACCOUNTS RECEIVABLE XXX PREPAID INSURANCE XXX PREPAID INTEREST XXX INVENTORY XXX $XXX TOTAL CURRENT ASSETS $XXX FIXED ASSETS LAND XXX BUILDING XXX FURNITURE, FIXTURES & EQUIPMENT XXX LEASEHOLD IMPROVEMENTS XXX LESS ACCUMULATED DEPRECIATION (XXX) XXX TOTAL FIXED ASSETS $XXX OTHER ASSETS LICENSE FEE XXX LESS ACCUMULATED AMORTIZATION (XXX) XXX TOTAL ASSETS $XXX 26 BOOK TWO MANAGING YOUR FINANCES

27 LIABILITIES AND OWNERS EQUITY CURRENT LIABILITIES NOTES PAYABLE - CURRENT ACCOUNTS PAYABLE ACCRUED PAYROLL TAXES ACCRUED SALES TAXES ACCRUED PAYROLL INCOME TAXES PAYABLE -STATE AND FEDERAL TOTAL CURRENT LIABILITIES XXX XXX XXX XXX XXX XXX $XXX LONG-TERM LIABILITIES NOTES PAYABLE - LONG-TERM DEBT LESS CURRENT PORTION OWNER S EQUITY (Proprietorship) OWNER S EQUITY - BEGINNING OF PERIOD LESS OWNER S DRAWING CURRENT YEAR INCOME TOTAL OWNER S EQUITY TOTAL LIABILITIES & EQUITY If ownership is by Corporation: XXX XXX XXX (XXX) XXX XXX $XXX STOCKHOLDER S EQUITY COMMON STOCK ADD L PAID IN CAPITAL RETAINED EARNINGS CURRENT YEAR INCOME TOTAL STOCKHOLDER S EQUITY XXX XXX XXX XXX $XXX BOOK TWO MANAGING YOUR FINANCES 27

28 BREAK-EVEN ANALYSIS FIXED AND VARIABLE COSTS Break-even analysis is important when identifying the feasibility of a new location and should be the first financial goal on which to focus. It can be very useful when deciding between multiple locations with different rent expenses. Break-even analysis is also known as cost, volume and profit analysis. This is an analytical technique used to study the relationships among fixed costs, variable costs and the profits of an organization. A profit cannot be made until all expenses are covered. The break-even analysis tool gives you an educated guess rather than a blind or gut feeling. This analysis is important when determining the feasibility of a location when to reasonably expect profit, and determining prices. Knowing the break-even creates clear goals for you and your staff. There are three types of costs that an organization incurs during normal operations: Variable Costs Costs that vary in direct proportion to changes in sales volume. Fixed Costs Costs that remain the same regardless of changes in sales volume. Semi-Variable Costs Costs that remain constant for a while and then may increase suddenly or decrease suddenly. EXAMPLES OF FIXED AND VARIABLE COSTS Type of Cost Fixed Costs Variable Costs Semi-Variable Costs Licenses X Rent X Payroll X Insurance Expense X Interest X Utilities X Payroll Taxes X Royalties X Advertising X Percentage Rent X Controlling your costs will help you achieve a lower sales volume for a salon to break-even. The figures used to calculate a break-even analysis may be obtained from your Profit & Loss Statement. On the following page are examples of how to calculate a salon s break-even sales volume. 28 BOOK TWO MANAGING YOUR FINANCES

29 HOW TO CALCULATE BREAK-EVEN 1. Calculate your total fixed costs 2. Estimate your margin percentage (sales (-) variable cost percentage) 3. Divide the fixed cost by the margin percentage EXAMPLES OF YEARLY BREAK-EVEN Fixed Costs $40,000 $40,000 $45,000 $45,000 Variable Cost % 75% 70% 75% 70% Margin % 25% 30% 25% 30% Sales Required to Break-Even $160,000 $133,333 $180,000 $150,000 NOTE: The numbers used in these examples are for demonstration purposes only. Additional information on break-even can be found on page 37. The Break-Even Template can be found on page 38. BOOK TWO MANAGING YOUR FINANCES 29

30 TRENDS TREND ANALYSIS As franchisees and managers of your business, it is important to be aware of how the business is doing in comparison to prior periods. The following is a list of comparisons that should be reviewed: Sales growth Retail Sales as a percentage of Total Sales Payroll Supplies Advertising Other Salon Expenses Total Salon Contribution Expenses as a percentage of sales cannot be obtained and compared without the use of some format for analysis. This information, when prepared, can assist you in managing your business in order to maximize your profits. On the following page is a format which is typically used to compare data. The data can be monthly or year-to-date figures to prior periods. This example is a year-to-year comparison. We strongly recommend that you analyze your data with both monthly and year-to-date comparisons. NOTE: Contact your Regis Financial Analyst to discuss specific trends in your business along with recommendations on how to analyze the data. 30 BOOK TWO MANAGING YOUR FINANCES

31 TREND ANALYSIS SAMPLE BOOK TWO MANAGING YOUR FINANCES 31

32 CASH VS. ACCRUAL BASIS ACCOUNTING Cash basis accounting is a method of keeping accounts whereby revenues and expenses are reported when cash is received and paid, regardless of the time period to which they apply. In contrast, accrual basis accounting identifies and records revenues and expenses in the specific time periods when they are incurred, regardless of when they are received or paid. Cash basis accounting does not accurately reflect income but works well for individuals or small companies. Accrual basis accounting, however, is more accurate and useful for those individuals or companies which use this information to effectively manage their business. CASH BASIS ACCOUNTING Revenues are recognized when received. Expenses are recognized when paid. ACCRUAL BASIS ACCOUNTING Revenues are recognized when earned whether received or not. Expenses are recognized when incurred whether paid or not. Deferred revenues have been received but not earned. Prepaid expenses have been paid but not incurred. Accrued revenues have been earned but not received. Accrued expenses have been incurred but not paid. NOTE: The application of the accrual method of accounting will provide a far more consistent and accurate reflection of the effectiveness of the business than will the cash basis. Supercuts recommends the accrual method. BILL PAYING/ACCOUNTS PAYABLE Before a salon is open for business, it is necessary to establish a system of bill paying and/or accounts payable. There are alternatives which you and your accountant must explore in the beginning stages of business development. A basis for accounting procedures must be chosen first. 32 BOOK TWO MANAGING YOUR FINANCES

33 CASH BASIS METHOD The cash basis method of accounting, although far less accurate, is perhaps a simpler accounting method. If using this method, bills would be paid and charged to the respective expense accounts directly from the check register. In other words, payment of bills would be the determining factor in creating the monthly financial statements, rather than the incurrence of a charge without regard for date of payment. ACCRUAL BASIS METHOD In the accrual method of accounting, all bills for services, supplies or inventory would be entered as an account payable in a purchase journal or general journal and the opposing charge entered as one of several classifications of expense or as inventory. Subsequently, as payments of bills are being made, entries would be recorded in a check register and charged against the accounts payable. Stated another way, in the accrual method revenue is recognized when earned (rather than when the resulting cash is collected) and expense is recognized when it is incurred (rather than when the required cash is paid). HANDLING OF BILLS AND PAYABLES In either of the methods, cash or accrual, the handling of bills and payables is very important. All documents billing for services and supplies are referred to as invoices and the monthly recap of invoices from a vendor are referred to as a statement. The statement form shows your account activity for a given month, complete with dates, invoice numbers, remittances, etc., as recorded by the vendor. These statements should be examined carefully, as they are received, to determine that your records and the vendor s records agree. Unpaid Bill File A tickler file, arranged alphabetically by vendor name, should be established to organize your unpaid bills. It should contain the packing slip or receiving copy of the invoice and should be verified for proper billing of items shown to be delivered and for pricing and extension. Paid Bill File As bills are paid, weekly or monthly, invoices should be pulled from the unpaid bill file marked with date of payment and check number by which paid, and then filed in the paid bill file. o This file should be maintained on a semi-permanent basis. Each check stub or voucher part of the check should show either a general ledger account number to indicate the type of account charged, or if a general ledger numbering system is not used, a word description of the name of the account. BOOK TWO MANAGING YOUR FINANCES 33

34 MONTHLY SALES (ROYALTY) REPORT The royalty fee is due each month as described in the Franchise Agreement. Your Franchise Agreement provides the percentage of the monthly sales to be remitted to Supercuts. The monthly sales (eroyalty) report is to be completed and sent to Regis Corporation via electronic submission by the 10th day of the month, following the month in which sales were received. This can be accessed from ioffice. Please refer to your Franchise Agreement for the specific payments you are required to submit. The Accounts Receivable section, starting on page 49, in this book has more information on eroyalty reporting. Questions regarding eroyalty set-up can be directed to SuperSalon the eroyalty user guide from SuperSalon, or your Regis Accounts Receivable Representative. A sample of the eroyalties report from ioffice can be found on the next page. 34 BOOK TWO MANAGING YOUR FINANCES

35 EROYALTIES REPORT SAMPLE BOOK TWO MANAGING YOUR FINANCES 35

36 FINANCIAL TOOLS FOR YOUR BUSINESS Each of these tools can be very beneficial for new or established franchisees. The Regis Financial Analysts have developed many tools to use for various timeframes of the business. Following is a brief description of some of the available tools shown in the image below. Price Change Analysis Break- Even Template Minimum Ramp-Up Guide POS Reports Ready Reference Matrix Financial Tools for Success Budget Template Pay Plan Template Payroll Estimate Tool Team Based Bonus NOTE: Many of these tools can be found on the Franchise Resource Center. Visit the site to view additional tools, or work with your Regis Financial Analyst. 36 BOOK TWO MANAGING YOUR FINANCES

37 BREAK-EVEN TEMPLATE Break-even analysis is important when identifying the feasibility of a new location and should be the first financial goal on which to focus. It is very useful when trying to decide between multiple locations with different rent expenses. The break-even template will calculate an estimated break-even with each change to the fixed or variable expenses. The tool is prepopulated with expense estimates but those estimates should be adjusted as you learn more about your actual expenses. There are two fields needed for input on the tool: Rent An estimated or actual amount can be used. Average Ticket Price The average service and retail spend per sales transaction. The estimated break-even template will calculate the estimated break-even for a location by dollar amount and guest count and will be displayed as: Annual Monthly Weekly Daily If the average ticket price field is entered along with the rent amount field, then the breakeven can be calculated as a guest count. Even if a ticket amount is not known, a break-even by dollar amount can still be obtained using the tool. BOOK TWO MANAGING YOUR FINANCES 37

38 Estimated Break-Even Please adjust these cells accordingly in order to see the feasibility of a particular location at a particular ticket price Average Ticket Price YEARLY FIXED EXPENSES RENT GENERAL ADVERTISING YEARLY VARIABLE EXPENSES DIRECT SERVICE COST OTHER PAYROLL COST OTHER OPERATING EXPENSES* PRODUCT COMMISSIONS*** Bank Charges TOTAL PRODUCT COST**** Charge Card Expense AD FUND Contract Maintenance ROYALTY FEES Insurance Licenses & Permits COST OF GOODS SOLD Miscellaneous** or VARIABLE COSTS = POS Expense Repairs & Services GROSS PROFIT MARGIN Store Supplies Taxes Telephone & Internet BREAK-EVEN Training Travel and Entertainment BY WEEK Utilities BY MONTH Workers Comp Insurance BY DAY TOTAL BREAK-EVEN GUEST COUNT TOTAL OPERATING EXPENSES BY WEEK BY MONTH BY DAY * Please note that these are estimated figures. Please adjust these expenses to the suitability of your business as you figure out what they will be. ** Miscellaneous includes expenses of Bad Debt, Cash Over/Short and Dues & Subscriptions *** Product Commissions estimated at 10% of Product Sales **** Total Product Cost estimated at 48% of Product Sales and 2% of Service Sales 38 BOOK TWO MANAGING YOUR FINANCES

39 SALES & GUEST COUNT RAMP-UP DOCUMENT The Sales & Guest Count Ramp-Up Document shows how sales and guest count have performed from months 1 to 36. This is a guide as to how the salon has ramped up in the most recently completed calendar year. Included are the salon median, average, maximum, and minimum. The first page is a summary of the median of each category being measured (i.e., service sales, product sales, total sales, retail to total sales percentage, total guests, ticket average, and salon count). EXAMPLE OF PAGE 1 SUMMARY System Median #s Months 1-12 Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Service Sales Product Sales Total Sales Retail Total Sales % Total Guests Ticket Average Salon Count The subsequent pages of the document include detail of the salon median, average, maximum, and minimum of each category. EXAMPLE OF PAGE 2 CATEGORY DETAIL Service Sales Months 1-12 Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Salon Median Salon Average Salon Max Salon Min Store Count NOTE: The locations included are franchise only and national numbers that include one salon owners to multi-salon owners. This document can be used to set expectations and goals. BOOK TWO MANAGING YOUR FINANCES 39

40 BUDGET TEMPLATE The Budget Template will help budget for the first three years of operation. The template will also help estimate the amount of working capital needed until break-even is achieved. It can also be used with a business plan, if applying for financing. Here is a snapshot of the budget template and listed below is a description of each tab. Below is a description of each tab included in the Budget Template: Please Read Tab This tab should be read first. It provides tips on completing the tool. 3 Year Summary (3 YR Summary) Tab The second tab will display a summary of the three years when each year s individual tab is completed. After completing the Data Input YR tabs, the 3 YR Summary tab will autocomplete and will display a summary of the first three years performance based on data entered in the input tabs. 40 BOOK TWO MANAGING YOUR FINANCES

41 Data Input Year (Data Input YR) There are three Data Input YR tabs, one for each year. The highlighted cells on the Data Input YR tabs need to be completed in order to use the document. Each Data Input YR tab has a partnering tab labeled Monthly Budget YR. The Sales section of the Data Input YR tab includes: Sales Services o Number of Services per Month - used to estimate the number of guests per month using whole numbers. o Average Service Ticket - used to estimate the average spend of each guest using a dollar amount. Sales Products o Used to estimate the retail to total sales using a percentage. The Cost of Sales and Charge Card Expenses sections require percentages. Some are concept based benchmarks, while others can be obtained from the Break-Even Template. The Operating Expenses and Debt Service sections require annual dollar amounts. When estimating, many of these expenses can be obtained from the Break-Even Template as well. Monthly Budget Year (Monthly Budget YR). The Monthly Budget YR tabs do not require any data entry and simply display the data from the Data Input YR tabs as a monthly amount. NOTE: The following page shows a snapshot of Data Input YR 1 (Year 1 Projection). BOOK TWO MANAGING YOUR FINANCES 41

42 Year 1 Projection - Data Input Only Enter Data In the Yellow Boxes Month 1 Month 2 Month 3 Month 4 Sales Sales - Services Number of Services per Month Average Service Ticket Sales - Products Product Sales as % of Total Sales Cost of Sales Labor Cost as a % of Service Sales 0% 0% 0% 0% Product Commssion as a % of Product Sales Product Cost as a % of Product Sales (for Products sold) Product Cost as a % of Service Sales (for Products used in the store) 0% 0% 0% 0% Royalty Fees 0% 0% 0% 0% Ad Fund 0% 0% 0% 0% Charge Card Expenses % of Sales that are Electronic Card Processing 0% 0% 0% 0% Charge Card Fee % 0% 0% 0% 0% Operating Expenses Annual Amount Advertising - Local $ Bank Charges $ Contract Maintenance $ Insurance $ POS Expense $ Rent Expense $ Repairs & Services $ Store Supplies $ Telephone/Internet Expenses $ Training $ Utilities $ Workers Comp Insurance $ Miscellaneous Expenses $ Debt Service Enter Annual Figures Principal & Interest Payments $ BOOK TWO MANAGING YOUR FINANCES

43 READY REFERENCE METRICS FOR YOUR BUSINESS The Ready Reference Metrics tool on the following page was created to provide franchisees with a one-page summary of important metrics to follow. There are many reports in SuperSalon, but due to the overwhelming number of reports available, the document was created to provide especially important areas of focus. These 12 metrics provide useful information on a wide variety of aspects of the business that are important to monitor. This tool was created to show a simple way to find metrics, how they are calculated, and what they can tell about the business as well as how often they should be reviewed by using the following SuperSalon (POS) reports: Salon Dashboard Payroll Report Daily Traffic Average Wait Time Monthly Statistics Discount Usage Year vs. Year Salon Overview Inventory Turnover The Ready Reference Metrics tool can be found on the next page. BOOK TWO MANAGING YOUR FINANCES 43

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45 FINANCE GLOSSARY Accounts Payable AP A liability account on the Balance Sheet representing outstanding debt. Account Receivable AR An asset account on the Balance Sheet in which services/goods have been provided, but income is to be collected. Amortization Amort Gradually reduces an intangible asset (e.g., goodwill) over time. It can also refer to the reduction of debt. Average Avg The sum of all the numbers divided by the total number of items in the set. Balance Sheet B/S A financial statement that summarizes a company's assets, liabilities, and owners' equity at a specific point in time. Break-Even BE The point where total revenue equals total expenses. Cash Flow CF The movement of cash into or out of a business. Comparative Percentages Comps Comparing sales or guest count trends to a similar period like last month or last year. For example, a positive comp means that sales or guest count has increased compared to a similar period and vice versa. Cost of Goods Sold CoGS The direct costs attributable to the production of goods/services. Current Year CY The present financial statement. Guest Service Follow-Up Notebook GSFN Orange notebook for stylists to set goals and track daily sales/production. Depreciation Depr A non-cash expense that reduces the value of an asset as a result of wear and tear, age, or obsolescence. BOOK TWO MANAGING YOUR FINANCES 45

46 Financial Analyst FA A service team member who provides financial recommendations, advice, and feedback. Four-Wall Contribution Federal Insurance Care Act Federal Unemployment Insurance FICA FUI Net income before overhead (total sales less total expenses directly incurred for running the salon - before overhead expenses, such as finance charges, accounting fees, etc.). United States federal payroll (or employment) tax imposed on both employees and employers to fund Social Security and Medicare federal programs that provide benefits for retirees, the disabled, and children of deceased workers. Fiscal Year FY Any 12-month period used for accounting purposes (for Regis Corporation, the fiscal year is July 1 - June 30). Inventory Turnover A ratio showing how many times a company's inventory is sold and replaced over a specific period of time (annualized cost of sales/average inventory). Last Year LY The previous year from the current year. Median The previous year from the current year. Net Profit NP Also known as bottom line (total revenues less total expenses). Overhead OH Expenses other than the salon expenses, such as management, professional, or other offsite expenses. Product Per Guest PPG Average retail sales per guest (total retail sales divided by guest count). 46 BOOK TWO MANAGING YOUR FINANCES

47 Production Per Hour Profit & Loss Statement PPH P&L The amount of sales generated in each hour, also known as service dollars per hour (service sales divided by hours worked). Also known as the income statement, measures a company's sales and expenses over a specific period of time. Payroll Percentage P/R % Total payroll cost as a percentage of total sales. Service Payroll Percentage Service P/R % Service payroll as a percentage of service sales (stylist, manager and receptionist wages divided by service sales). Same-Store Sales SSS Sales compared to the previous year for the same time period to determine change in sales. Shrinkage Sliding Scale Missing products due to theft or inventory errors. Pay plan that consists of an hourly base wage plus commission percentage paid on production per hour if the predetermined base point of production is achieved. State Unemployment Insurance SUI Ticket Average TA Average total sales per transaction (total sales divided by guest count). Working Capital WC Measures how much in liquid assets a company has available to build its business (current assets minus current liabilities). Year-To-Date YTD A financial statement that is from the beginning of the fiscal year to the current date. BOOK TWO MANAGING YOUR FINANCES 47

48 FAQS Who can help determine appropriate salaries for our managers? The Regis Financial Analysts will be happy to provide you with recommendations and tools that you can use to create your own individual compensation plans. What are some other pay options for stylists and managers that other franchisees offer instead of the pay matrix? The pay matrix is the most common pay plan. An alternate pay plan is a simple Base Wage or Commission plan. Basically you make your base wage or a straight commission percentage, whichever is greater. Does Regis recommend a sign on bonus or retention bonus for staff? If so, what is the timing and amount? We recommend a sign-on bonus more than a retention bonus. We also recommend that a sign-on bonus is not paid out right away (at least not in full), and that you have to work a certain time period (generally 3, 6, or 12 months) before the sign-on bonus is paid out in full. We do not necessarily recommend a sign-on bonus all of the time, but more on a needed basis. Can I get a price list from corporate? For all service-related pricing questions, please reach out to your Financial Analyst for assistance. How much of my budget should I allocate for my opening retail and salon supplies order? Several variables determine an opening order price: size and quantity of the retail units, the back bar supplies, and training supplies. Regis Franchise Product Sales will assist you with the recommended order and pricing. You can also discuss your budget projections with your Regis Financial Analyst. Is there a special credit card processing rate available to franchisees? Regis has a relationship with Elavon. More information on this vendor can be found on the Franchise Resource Center. You can also discuss further with your Regis Financial Analyst. I am having a problem with my eroyalty report. Who can I talk to? Contact the Regis Accounts Receivable department. They will help resolve any problems. POS concerns need to be handled with SuperSalon. I need to file for sales and tax numbers for my state. How can I get more information? You should ask your accountant for direction or contact your state government. 48 BOOK TWO MANAGING YOUR FINANCES

49 SECTION B: ACCOUNTS RECEIVABLE The Operations Manual contains information and recommendations intended to help you successfully open and operate your franchised store in compliance with the system, brand, and your Franchise Agreement. Your Franchise Agreement is the complete statement of your rights and obligations in the operation of your store. In the event of a conflict between the Operations Manual and your Franchise Agreement, your Franchise Agreement controls. BOOK TWO MANAGING YOUR FINANCES 49

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