The Power of Pre-Booking
Pre-booking a client's next appointment before they leave the salon is the most effective way to increase frequency of visits and therefore, sales. We know this, so we make it part of our procedure to always ask if guests if they would like to book their next appointment. We were feeling pretty good about ourselves when we got our pre-booking up to 18% from virtually none. The other 82% would say "I can't, I never know my schedule”.

Try this as a suggestion and see how it affects your pre-booking status. "Since the holidays are coming up I took the liberty of booking your next appointment for you. Let us know if this time doesn't work for you."

The holidays are a perfect time to start a pro-active pre-booking program. There's a built-in excuse!

Just as managing any business communication is the key to success. You must outline job duties and have a clear understanding of expectations and goals. However, as an employee it’s up to them to communicate with the supervisor if other issues are being brought to their attention that would be preventing you from accomplishing your goals and duties.

As a salon owner you must have excellent client service and remember to never compromise what matters most – values.

Also, with any business a huge part of obtaining new clients is marketing. At Favazza & Associates, LLC this is where we find ourselves unique. Anyone can put the right numbers in the right boxes on a tax form, that’s a given. Teaching a business owner how to use sound financials that are not catered to prepare a tax return but to operate a business is vital to the businesses success. Taking those financials and finding new growth strategies and not just trying ways to cut expenses all the time. We don’t just want to be the person that you see once a year, we want to communicate on a regular basis and take an interest in the growth and success of your business. 

Revenue per Hour

Revenue per hour doesn't have much meaning until you compare it to Cost per Hour. By taking all my costs and dividing them by the hours that are for sale. If the cost per hour is higher than the revenue per hour, we've got a problem! (For the most useful results, omit retail revenue and retail cost from your calculations. The result will be Service Revenue per Hour and Cost of Providing One Hour of Service).

When you know these two numbers you can make better decisions for your business.

If RPH is too low it could be an indication that your prices are too low. Alternately, it could be a sign that you are overstaffed - too much unproductive time will push down your RPH.

Knowing your revenue per hour can also be useful when dealing with compensation issues. If a technician requests a raise, you can evaluate their RPH and the salon's Cost per Hour to determine if an increase is warranted.

W-2 vs. 1099

Many employers/salon-owners believe it is their decision whether or not to withhold taxes from a worker's pay. They believe if they call you a "contractor" instead of an "employee" they are OK to not pay the taxes. The IRS, however, looks at things a little differently. The IRS's website has a whole section on Independent Contractor versus Employee. Go to www.irs.gov and search on "independent contractor or employee" for more information. The general rule is that if a business exercises a certain amount of control over the worker, they are a legal employee (subject to payroll taxes) no matter what the employer says. The IRS looks at three areas to make the determination:1) Behavioral 2) Financial 3) Type of relationship





Behavioral refers to how you perform your job. How much control does the salon owner have over the performance of your work? Do you set your own hours, or do you have a schedule you are required to maintain? Are you required to use certain products or tools, or are you free to choose? Are there certain procedures you are to follow when performing the work or are you determining how the service is performed?

Financial - Contractors are free to offer their services to the community at large. They often advertise and promote their own business. They also have an opportunity for profit or loss. Do you go out and find your own clients, or does the salon owner advertise on behalf of the salon? Do you control your own client data or does the salon?

Type of relationship - An independent contractor relationship is generally for a specific period of time or for a specific project. If a worker is hired with the expectation that the relationship will continue indefinitely, this is a sign of an employee/employer relationship.

OK, so now you may have a good idea whether you are, in the eyes of the IRS, an employee or an independent contractor. Why should you care and why should the salon owner care?

Employee Perspective - An independent contractor is responsible for their own taxes. You receive your gross pay and must be disciplined enough to put some of that money away so it will available at tax time. You may also need to make estimated payments during the year to avoid penalties. You are considered self-employed so you can deduct from that gross income any business expenses (business cards, advertising, license, etc.). In addition to paying income taxes on the net profits of the business, you also must pay Self-Employment Tax. This is a tax of 15.3% on top of the income tax. (It's actually 7.65% of employee social security tax + 7.65% for the employer's share of social security tax - since you are self-employed you pay both halves of the social security tax).

Salon-Owner Perspective - The salon owner is calling you an independent contractor for two reasons - 1) she doesn't want the bother of withholding and paying in taxes and 2) she doesn't want the financial burden of paying the employer share of social security (not to mention unemployment tax, worker's compensation insurance, etc). If the IRS catches up with a business that is paying people as independent contractors instead of as employees, it can be a fatal blow to the business, not to mention the owner's personal finances. The IRS can go after the owner PERSONALLY for the unpaid taxes. As a salon owner, this is not a risk I would take. All it takes is one disgruntled former worker to open an IRS investigation.

By the way, the salon owner is also required to withhold taxes on your tips, and again, the owner can be held liable if this is not done.

My advice for salon owners - don't play with fire. If you don't know if you are paying your workers appropriately, talk to your accountant or bookkeeper. If you should classify your workers as employees, just do it - yes, it's a hassle, but not half the hassle of having the IRS breathing down your neck.

 

Cash Plan

For many business owners this time of year often presents a common question. How could I owe taxes when I have no money? These business owners are running a checkbook business. If there is money in the bank then I must be doing ok.

The first important thing to know is Cash does NOT equal Profit. They are two different things. Without cash you cannot pay vendors, employees, utilities, etc. Basically cash is king. A cash flow plan lets you decide in advance what you can do with the money coming into your business.

Most cash flow plans start very simple. Estimate the sales for the month in service and retail. Some of these services will not be paid in cash; they are sometimes gift certificates and redemptions, or discounts.

Most expenses come in two different sections:

1. Direct expenses such as technician pay, cost of retail products, and back bar cost.
2. Administrative expenses and everything else. Rent, payroll, insurance, utilities, etc.
   

As the month goes you can follow the plan and see if there is room for adjustments. The great thing about having this plan is that it helps you set attainable goals. You can include your team in these goals and even set contest for up selling product and services. This way everyone knows where they stand and by managing your finances more closely you are less likely to spend money on things unless it’s necessary.

Including your team gives them a sense of ownership and accountability. Standing behind the chair and cutting great hair does not make the business profitable. Being a business owner brings on many skills and tasks and to beat the odds you must plan!

By focusing on pre-booking appointments, retail, and up selling, along with shared goals and a large amount of communication you can boost your bottom line up to 20% in some cases.   

Your service sales can be summarized by multiplying the number of clients you see in a month by the average ticket service ticket. So, for example if you see 700 clients a month and your average ticket is $50, your service revenue would be 35,000. To have service revenue higher than 35,000 you need to see more than 700 clients, or have a higher average ticket, or both.

So how can you get your number of clients up? Two main ways:

1. Pre-Booking
2. Client Retention
   

Prebooking- Booking your client’s next appointment before they leave the salon. This will keep them coming in regularly and prevent them from stretching out appointments.

Client Retention- each month some clients are choosing not to return in the future. Sometimes this is unavoidable. Other times, a client service issue is driving them away. Finding ways to pamper your current clients and keeping them happy makes them walking advertisement. If they look great and someone asks who did you hair, the answer will be you!

To get your average ticket price up this takes thought. When was your last price increase? If the answer is more than 1 year than you are probably due. Don’t hesitate to raise prices as an owner, its part of doing business. Other strategies would include adding on an eyebrow wax. This could add $10-$15 per ticket. Maybe adding a mini-facial while color sets, be creative.

Retail revenue works the same way. For clients who already purchase retail you can employ the Noah’s Arch strategy 2 by 2. Purchase one for home and one for the gym. Having your sales people ask if they need anything else as they walk you to the register is not going to generate sales. Do your clients know what products you are using and why?

They should be explaining that I am using this product on you to add shine, volume, color preservation, or to make it thick and full, etc. Women of ten leave the salon wanting to have the same look everyday. They key again is client relationships and product knowledge goes a long way. Let your team in and let them shine like rock stars and you will hit your goal, with just a little encouragement.


 

Given the amount of resistance to change that settles in after you've selected an accountant, it's important to make a good choice the first go-around. Makes sense, right?

Surprisingly, most business owners don't thoroughly consider their industry needs when selecting an accountant. That's because many of us who don't have a strong accounting background view all accountants as being equal.

But the reality is that all small business accountants are not created equal.

Small Business Accountants can assist your business and provides useful questions you should use to choose an accountant that truly can help your business grow, not somebody who just crunches the numbers or puts the right numbers in the right boxes on the right tax forms.  
What Do Small Business Accountants Do Anyway?

The increasing role of small businesses in the American business landscape and along with the more powerful and accessible information technology has changed the role and importance of the small business accountant.

Why do you need an accountant? Some contracting businesses make due with a bookkeeper this person is sometimes a family member or spouse - someone to perform the tedious task of recording financial information and cranking that data into the necessary formats, like P&L statements and tax forms.
But a good small business accountant does much more than just record transactions and passively generates documents-they actively analyze, interpret and convert that data into actionable business intelligence.

Based on where you want to go with your business, they should be able to tell you how to get there. If your accountant is just showing you the financial tracks of where you have been, you've made a bad choice and you're missing out on a great opportunity to receive good business advice.

To be sure, today's contracting business accountant offers more than crunched numbers. They can be your primary resource for:

• Tax Planning. Beyond simply preparing tax forms, an accountant should be involved in business planning throughout the year. They should be able to regularly advise the business so it functions with peak tax efficiency.
• Business Consulting. A good accountant should be able to help your business grow. Talented small business contractor accountants function as a trusted general business consultant, assessing business problems and offering specific solutions. They offer advice on internal controls, risk management, lease versus buy decisions, inventory strategy, pricing, and even marketing. In short, an accounting professional who really understands your business from the inside out should be a trusted business advisor who is highly motivated to see you succeed.
• Personal Finance Advice. A good small business accountant understands that your personal finances are essentially linked to your business finances. They view the two holistically and offer advice on both fronts. For example, while serving as your small business accountant, they might offer retirement planning advice and estate planning advice that is related to your business activities but that will ultimately leave you in a stronger financial position.
• Technology Know-How. Computing technology has dramatically improved business capabilities as powerful business software is no longer only for corporations and the Internet provides a level of access to knowledge, customers and suppliers hardly dreamed of even ten years ago. A good accountant must -- must! -- Absolutely be proficient in applying the fantastic and inexpensive information technology that turns business data into strategic intelligence. They need to be very familiar with leading small business management software packages from leading vendors like, Intuit and QuickBooks.
• Networking. While the strength of an accountant is still what they know, a mark of a successful pro is also who they know. Your accountant should be a good source of referrals as they should now precisely each of their clients' strengths and needs. Need to get a loan for your small business? Your accountant ought to be able to introduce you to the right banker.

Questions to Ask Your Prospective Accountant

The bottom line is that you should expect today's accountant to be much more than a bookkeeper. Most do add considerable value. The trick is to separate the wheat from the chaff.

So, with your raised expectations, how do you choose the right accountant for your contracting business? Like any relationship, it boils down to a compatibility of interests, experience and outlooks. Seek recommendations from your peers and ask prospective accountants the following questions:

• Do you have your CPA? Business owners are often confused as to the certified public accountant (CPA) designation. A CPA has a surpassed accepted financial education levels, passed state-administered tests to prove competency and periodic re-certification exams. Certain situations, such as audits and many loan applications, require CPA involvement. What kind of creative business advice will you offer me? A good accountant can skillfully handle data and numbers but should also be able to demonstrate quick and creative business insight. Ask them for some examples in which they offered useful business advice to other clients in a similar industry that went beyond just tracking the numbers. While "creative accounting" is usually a negative, having a creative business mind can be a huge asset towards helping your company to grow. 
• Who are your other clients? Imagine this scenario. You hire an accountant based on the assumption that he understands the basics of your business. Then, you find out that he's never had a client like you before. Instead, he's only prepared tax forms for wealthy individuals that don't own businesses. Avoid that possible disaster by asking who the accountant works with. If they are businesses that are similar to yours, that's a good sign. In asking about their clients, you will also want to understand how busy they are and whether they have the time and resources to support you adequately.  How do you calculate your fees? Ask the accountant what you can expect fees to be and will he guarantee that you will not exceed certain amounts that you agree upon up front. In a time-based fee structure, make sure to find out the hourly rate, as well as all fees for expense reimbursement. Find out now whether a simple two-minute phone call or a one page fax means an hour of billable time. If that's the case, run for the door.
• Are you active in the local business community? Who do you know that can help me? Find out whether your prospective accountant can introduce you to people who might be useful to you, including prospective customers, suppliers, bankers, and investors. Since talk is cheap, take it one step further. Ask the accountant for examples of introductions they've made in the past for other clients and how those introductions played out. 
• Why should I use you? As a final question, it's always good to let the accountant make the case for why you should engage them.

Transition Process

There are lots of other accountant firms to choose from. To be frank – not all of them are what they claim to be. Very few offer the level of service that we pride ourselves in delivering to our clients.

Our experience and testimonials has shown that many business owners become fed up with the level of service they get – or rather don’t get from their accountants. Even still they fell unable to make the move because they are worried that there will be all sorts of complications with the transition process. Well, don’t worry because we can make that transition easy for you. Some are nervous about telling their accountant that they are moving. We understand and want to help smooth that process for you.

If you want to change your accountant our team will work with you to make sure that the transfer can happen with little interference and disruption. 


Choose the right accountant the first time around

Accountants have to develop detailed knowledge of your business in order to their job.

However, this makes the move to a new accountant much harder. It’s worthwhile to spend a lot of time making sure that an accountant is right for you. Don’t be afraid to ask your prospective accountant for a free preliminary interview. Ask where they went to school, if they participate in continuing education and if they have partners that assist during tax season and if they are reliable after the deadline.

Good accountants will have references and good standing with the Better Business Bureau, Chamber of Commerce and the local banking community. Also, they should have clients in your industry such as contracting. You should make sure that you are personally comfortable with this person because you will entrust your personal financial information to this person.

Does my accountant need to be a CPA?

Absolutely! There are more than a few accountants and bookkeepers that set up shop without any kind of certification or knowledge of your company’s industry. They may be a little cheaper, but if they screw up, you are responsible. So, for instance, if your uncertified accountant gives you the wrong information, the IRS will be talking to you not the accountant. Is that a liability that you want? Certified Public Accountants or CPA’s are held to a higher standard, require continuing education to stay up to date on current tax law, and are a safer bet and a wise investment for your business.

Why we can do it and still save you money
 
80% of the bookkeeping task in a typical business is rote entry. The people that do this typically cost $15+ an hour, plus the overhead cost and management cost.

20% of the bookkeeping task requires a true knowledge of the bookkeeping cycle; these people cost $65 to $100 per hour. They can spot errors, deliver meaningful financial reports, and help you build cash flow.

The problem starts when businesses hire the “80% type” people and cross their fingers and hope for the best. Soon, the numbers can’t be trusted and owners fin themselves using the “Cash on Hand” accounting. This means running a business using anecdote and feelings rather than the facts. What follows? Cash flow problems, extra work hours, and more debt.

We can do this at less cost since we hire, manage, and deliver the appropriate skill for each task. You don’t need to hire a $70,000.00 per year CFO, but you could have access to one only when you need them. No management time or costs is spent on the bookkeeping position. Our use of technology eliminates a huge amount of wasted time in a traditional on site bookkeeping function.