FINANCES IN REAL TIME. How To Implement Change that Impacts the Profitability Of Your Spa

Transcription

1 FINANCES IN REAL TIME. How To Implement Change that Impacts the Profitability Of Your Spa Presented By Monte Zwang & Mark Machlis 1

2 A LITTLE ECONOMIC HISTORY ; Recession, ; No Recession, ; Recession, ; No Recession, ; Recession, ; No Recession, ; Recession, ; No Recession,, ; Recession, ; No Recession, ; Recession, ; No Recession, ; Recession, ; No Recession, ; Recession, ; No Recession, ; Recession, ; No Recession, ; Recession, ; No Recession, ; Recession, ; No Recession ; Recession, ; No Recession ; Recession, ; No Recession, 2007 present; Recession! 2

3 WHAT HAPPENED? The economy affected our Guests. They booked less often. They bought less retail. We were viewed as optional unless we were providing a preventive wellness oriented service. 3

4 ISN T THIS HOW IT FEELS? 4

5 But, Let s Be Honest The Economy gave us a villain to blame our financial woes on. We really didn t have a handle on them before this crisis hit. Did We? 5

6 Financial Statements the basics 6

7 Financial Statements the basics 7

8 Budget, Manage, Watch 6 Numbers 1. Labor Costs 2. Cost of Sales (Gross Profit Margin) 3. Overhead Expenses 4. Net Profit 5. Debt Service 6. Breakeven Sales 8

9 Direct Costs Labor Costs 50 of every dollar goes toward labor What is your labor cost? Evaluate your compensation plan it needs to be close to 42% of Service + Product Sales Front Desk labor needs to be less than 10% of Service + Product Sales 9

10 Fee Per Service Compensation 10

11 Direct Costs Costs that directly relate to and fluctuate with sales Largest category of expenses on your income statement Rubs and scrubs </= 10%-15% of Service Sales Keep them under 60-70% of Service + Product Sales 11

12 Gross Margin, Gross Profit Margin Service + Product Sales Direct Costs First indication of whether you are making money or not Expressed as a percentage of Service + Product Sales Should be 30-40% of Service + Product Sales Must be adequate to pay overhead and debt service 12

13 Overhead = Indirect Costs Do not fluctuate with sales Occur every month Should not be more than 35% of Service + Product Sales Examples Rent, repairs and maintenance Advertising & Promotion Utilities, telephone, office supplies Insurance Admin salaries, payroll taxes Professional fees 13

14 YOUR LEASE & LANDLORD The bubble has burst on commercial real estate. Market rate when you signed you lease is not market rate today. 14

15 Net Profit Am I Profitable? The Equation Sales (money in) - Direct Costs (money out) = Gross Profit Gross Profit - Overhead Costs (money out) = Net Profit Net Profit - Debt Service (money out) = Working Capital (This is what you get to keep) 15

16 PRE-EMPTIVE RE-NEGOTIATION Debt Service - Debt is Accounts payable, notes, loans, credit cards, leases, lines of credit, money you have loaned your business Evaluate debt separately from business operations If you can t afford it, don t buy it Any contract, lease, bank note, equipment lease and credit card payment can be re-negotiated. Should not be more than ½ of Net Profit 16

17 Breakeven Sales Minimum sales volume require (cash collected) every month to cover all direct costs, indirect costs and debt without experiencing a financial loss Discussed in terms of number of treatments (services) required No one is in the business to breakeven, we are in business to exceed breakeven 17

18 Breakeven Sales (cont.) The lower your breakeven the longer you can weather this climate Overhead Expenses + Debt Service Gross Margin = Breakeven Example Overhead $11,000 Debt $1,750 Gross Margin 35% Breakeven = $13,750 35% or $36,429 18

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20 Breakeven is Vital What does that mean in terms of services? For $36,429 in Breakeven sales 85% Service: $30,964 If average service is $85, must do 364! 15% Retail: $5,464 Average retail sale must be $15.01 per service. Plan to get there starting today! Gift Certificates provide cash flow and marketing cushion 20

21 The Pieces Of The Puzzle Breakeven Sales = 100% Direct Labor = 42% Gross Margin Total Direct Cost = 65% Gross Margin = 35% Overhead Expense = 30.2% Net Profit = 4.8% Debt Service = 2.4% 21

22 TOUGH LOVE: THE DOLLAR HEART 22

23 INVOLVE YOUR TEAM TIMELY REVIEWS DAILY MEETINGS 23

24 Case Studies Evaluate & Strategy Four Scenarios of Change High Labor Cost? Private label line? Lower Overhead Cost? Restructure Debt? 24

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29 Implementing Change PLAN FOR CHANGE NOW (REACT), TOMORROW (QUICK PLAN), END OF WEEK (SHORT TERM) AND FUTURE (LONG RANGE). Awareness, response, action. 29

30 Finances In Real Time Systems need to provide timely numbers. Have a system to bring the 6 Numbers to your attention in an accurate and timely manner You can t wait for financial statements Use each Number to paint a new scene. Work the scene Provide a weekly means of attending to these numbers and then the process for using the numbers to ACT NOW 30

31 Meet With Us At ISPA! Monte Zwang Mark Machlis

32 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 spas. Monte has been a consultant for more than 25 years, teaching business planning and cash flow management. Zwang negotiates sales, acquisitions and merger transactions. He is active in the Day Spa and International Medical Spa Association and spearheads their research projects. A graduate of Denver University Daniels School of Business, Zwang has been honored by Seattle Magazine as a Five Star Best in Client Satisfaction Wealth Manager for 2009 and For more information visit: