The service industry ranges from medical care to professional services. Its value is driven by man hours and not the sale or production of widgets.
Service based operations do not use the traditional retail based format for the profit and loss statement which utilizes a ‘Cost of Goods Sold’ section, instead the service industry uses a ‘Cost of Services Rendered’ segment. The presentation format is very similar though.
An owner of a hair salon needs a well organized and properly formatted profit and loss statement (income statement) to properly evaluate performance. There are multiple presentation formats used in the service industry, but after 25 years of accounting I advocate for the functional presentation arrangement. This form of a profit and loss statement allows the owner to quickly and decisively determine performance throughout the entire operation.
The constant movement of stylists from one salon to another is actually bad business. How do you, as the owner, prevent or minimize this employee turnover? The answer lies in basic employee desires and needs in comparison to the salon’s needs and priorities.
Team based pay in the hair salon industry is the newest solution for compensating employees and increasing the overall performance of a salon. IT WILL NOT WORK. This article is a critique of this program and provides several reasons why this management style is ineffective for a salon.
A very common small business in the service industry is the carpet cleaner. Many owners of such businesses desire to know the margins and of course the associated operating expenses involved.
A long standing custom in the hair salon industry is owners of salons leasing out booths to hair stylists. If not properly documented and exercised appropriately, the owner opens the door for many legal issues. Booth rental has both legal and IRS compliance issues that need to be addressed. Booth rental is legal in many states but you must adhere to several contractual compliance requirements to completely separate your salon from the renter.
Have you ever wondered why technology is so expensive? Why does the technology repairman charge more per hour than what many attorneys charge? Why does it feel like you get nickeled and dimed to death with technology costs?
One of the most fascinating business models is the hair salon industry. Many salons are poorly managed and rarely generate adequate profits. To make matters worse, the stylists are like professional sports players. One week they are playing for this team, and next week they are on a new team. In effect, they switch salons. It often happens because of personality conflicts, but the most common reason is that the grass is greener over at the other salon. That is; there is more compensation over at the other salon. How can this exist? How can one salon offer greater compensation than your salon? After all, they face the same economic barriers you deal with on a day to day basis. Given this, what is a fair compensation package? How do you create a model that not only entices better stylists but ensures adequate profit for your salon? This article is written to describe the current industry model, and then I’ll explain what is wrong with the model and finally how to change the model to create a fair compensation package for the stylist and still generate adequate profits for your salon.
Service related businesses require a different format than the traditional profit and loss statement AKA the income statement. The traditional profit and loss focuses on sales of products and a corresponding cost of goods sold section to help the reader evaluate the gross margin. But in service, the owner needs a profit and loss statement formatted to key in on overall productivity and costs of that productivity.
Every service related business wants to maximize the hours the staff bills or provides services to customers. When they are working, the business gets to bill for time and generate revenue. Maximum revenue means the best chance at creating the highest profit.
